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European Union

Commission presents its proposal to extend scope of EU directive on money laundering

The European Commission has put forward a proposal to update and extend the 1991 Directive to counter money laundering. The new proposal would extend the scope of the fight against laundering to:

  • the proceeds of all organised crime and fraud rather than only drugs offences; and

  • to a series of non-financial activities and professions which are susceptible to misuse by money launderers (such as external accountants and auditors, real estate agents, notaries and lawyers carrying on financial transactions, dealers in precious stones and metals, security companies carrying money and casinos) rather than the financial sector alone. The proposed amendments were outlined in the Commission's report on the current Directive (see IFLR, EU Briefings, July 1998) and identified as one of the top priorities of the Action Plan for Financial Services (see IFLR, EU Briefings, June 1999) endorsed at the June 1999 Cologne European Council. The new EU rules would meet or go beyond international guidelines to counter money laundering established by the Financial Action Task Force.

The Money Laundering Directive was a landmark in the fight against criminal money and the highly damaging effect it can have on the integrity of and confidence in the financial system and has served as a reference for non-EU countries' measures against money laundering. It requires financial firms (including bureaux de change and money transmitters) to request proof of the identity of their customers when opening an account or safe-deposit facilities, or when a single or linked transactions exceed euros15,000, to keep appropriate records and establish anti-money laundering programmes. Most importantly, it provides that banking secrecy be suspended whenever necessary and that any suspicions of money laundering (even below the threshold) be reported to the authorities.

Given the particular status of lawyers and their duty of confidentiality, as stressed by the European Parliament, they would be exempted from any reporting requirement in any situation connected with the representation or defence of clients in legal proceedings. To make full allowance for lawyers' professional duty of confidentiality, member states would also be given the option of allowing lawyers to communicate their suspicions of money laundering by organized crime not to the normal anti-money laundering authorities but to their bar association or equivalent professional body.

Draft Notices on Merger Regulation

Three draft Commission Notices were posted on the Commission's competition web site on August 18 1999reviewing the treatment of:

  • restrictions ancillary to concentrations;

  • commitments given as a condition of clearance; and

  • routine cases under the Merger Regulation. These Notices are intended to provide guidance reflecting the Commission's current practice in these areas.

Draft Commission Notice on restrictions directly related and necessary to concentrations

There are several proposed changes to the Notice and the wording has been streamlined. Descriptions of the economic justifications which must apply if a restriction is to be regarded as necessary have been added. Since the Merger Regulation does not contain the word "ancillary", the Commission has proposed that the phrase "restrictions directly related and necessary to the implementation of the concentration" as contained in the Merger Regulation should now be used

The clauses specifically cited in the draft Notice are non-compete clauses, certain licence agreements, certain purchase and supply agreements, and various other clauses, such as those relating to the use of names and trade marks.

Non-compete clauses may be considered as directly related to, and necessary for the implementation of a concentration within the meaning of the Merger Regulation. Non-solicitation clauses and confidentiality provisions are treated as non-compete clauses to the extent that they prevent competition between the parties to the concentration. Many non-compete restrictions will benefit from a general presumption of being directly related and necessary to the concentration. The Notice will cover certain licence agreements as well as agreements on trademarks, related rights and business names. Purchase and supply agreements and various other clauses may presently be considered to be directly related and necessary to the implementation of the concentration for a transitional period.

At a procedural level, the parties must, when notifying the Commission, refer to precise clauses and offer sufficient reasoning as to why the clauses concerned are directly related and necessary to the implementation of the concentration. If they fail to do so, they may risk being excluded from the Commission's clearance decision.

Draft Commission Notice on commitments under the Merger Regulation

Commitments may be given by the parties to a notified merger in both Phase I and Phase II proceedings (although the Commission will be more restrictive in accepting commitments in phase 1 since no in-depth market investigation will have been carried out at this stage), and if considered sufficient to deal with the competition problems identified by the Commission, may lead to conditional clearance being granted.

The draft Notice on commitments aims to provide general guidance on the type of commitments likely to be acceptable to the Commission, based on its practice over the past nine years. As a general principle, commitments must have the effect of reducing the merging parties' market power and restoring competition in the market, so that the transaction gives rise to no creation or strengthening of dominance. Commitments must both provide a lasting solution to the competition problem identified and be able to be put into effect speedily and effectively. While the Commission expresses its willingness to take a constructive approach to novel solutions, it nevertheless recognizes that in some cases, the only effective remedy may be prohibition.

Although it stresses that the appropriateness of a remedy can be determined only on a case-by-case basis, the Notice analyzes the main categories of commitment that have been accepted by the Commission: divestiture (the most typical), termination of exclusive agreements, giving competitors access to necessary infrastructure or key technology, and commitment packages featuring a variety of these or variations upon them.

Draft Commission Notice on a simplified procedure for processing certain concentrations under the Merger Regulation

The third draft Notice sets out a simplified procedure to apply to certain categories of merger cases, which, the Commission has found, are normally cleared without raising substantive competition issues. Under the Commission proposals, provided transactions of this type meet all the conditions set out in the Notice, and in the absence of special circumstances, the Commission will not adopt a formal clearance decision in respect of them, and they will be deemed to be authorized upon expiry of the phase 1 one-month deadline. Appropriate ancillary restraints will receive the same treatment. (The Commission nevertheless reserves the right to revert to a normal procedure or issue a formal decision within the one-month period, if circumstances so require.)

The categories of mergers considered suitable for this automatic clearance are:

  • acquisitions of joint control over a joint venture with minimal activities in the EEA (turnover less than euro100 million and total value of assets transferred less than euro100 million in the EEA);

  • mergers where the parties are not engaged in business activities in the same product and/or geographical market, or in an upstream or downstream product market; or

  • mergers where two or more of the parties are engaged in the same product and geographical market (horizontal relationships), or a market upstream or downstream (vertical relationships), and their combined market share does not exceed 15% for horizontal and 25% for vertical relationships.

Pre-notification contacts with the Commission are strongly advised for cases of this sort.

Various safeguards (such as a requirement for notifying parties to provide information on all possible alternative market definitions during the pre-notification phase) and exclusions from the simplified procedure (eg for concentrations involving conglomerate aspects, or cases involving new or evolving markets where it is difficult to ascertain accurate market shares) are outlined in the draft Notice. Procedural issues are also dealt with, eg the fact of deemed clearance will be published in the Official Journal.

Further step towards e-commerce Directive

Following the adoption by the European Parliament of a favourable opinion, the European Commission put forward an amended proposal for a Directive to establish a coherent legal framework for electronic commerce within the Single Market on September 1 1999. The amendments introduce a number of clarifications relating to the definition of Information Society services and of consumers, to the link between the electronic commerce proposal and existing consumer protection and data protection Directives, the treatment of unsolicited commercial communications via electronic mail and determination of the moment when an on-line contract is concluded. The Commission has retained the proposed rules limiting the liability of on-line service providers who act as intermediaries.

The amended proposed Directive will be forwarded to the European Parliament and the Council of Ministers for adoption under the co-decision procedure.

Commission authorises two Bank of New York operations

On August 25 1999 the Commission cleared two acquisitions by the Bank of New York (BNY).

The first of these involved the acquisition of joint control by BNY International Financing Corporation of Royal Bank of Scotland International (RBSI) Security Services (Holdings), previously wholly-owned by RBSI (Holdings), part of the Royal Bank of Scotland group.

BNY International Financing Corporation is a wholly-owned subsidiary of The BNY Company group, which provides a broad range of banking and financial services. RBSI Holdings provides banking and other financial services (including trust, custody and fund administration services) in a number of offshore jurisdictions.

RBSI Security Services is active only in the offshore islands of Jersey, Guernsey and the Isle of Man, where it offers fund administration and custodian services. After the transaction it will continue to operate as a full function entity, constituting an autonomous joint venture in these three islands where neither of its parents have operations.

The Commission therefore found that the operation did not raise any competition concerns in any member state or the EEA.

The second transaction involved BNY Company acquiring sole control of the Royal Bank of Scotland (RBS) Trust Bank (Holdings), a wholly-owned subsidiary of the Royal Bank of Scotland. BNY's subsidiary, BNY International Financing Corporation, acquired the entire share capital of RBS Trust Bank, whose main business is the provision of custody and investment administration services and treasury dealing, both in the UK for domestic and foreign entities and in Luxembourg for Luxembourg-based funds. BNY also provides custodian and funds administration services, among its extensive range of banking and financial services.

The only area in which the operation has an appreciable effect is the provision of custodian services for UK assets to a variety of investment institutions. The Commission considered that, in the provision of such services, BNY would face significant competition from Midland Bank, Chase Manhattan and Lloyds TSB, and several other reputed operators. Consequently, the Commission authorized the transaction.

Joint venture between Crédit Lyonnais and AGF-Euler cleared

On August 26 the European Commission authorized the formation of a joint venture to which Crédit Lyonnais (France) and AGF-Euler (Germany), a subsidiary of the insurance group Allianz, will contribute their European factoring business, creating the second-largest factoring company in France.

Crédit Lyonnais provides banking and financial services and is active on the factoring market through its subsidiaries SLIFAC and Eurofactors. The Allianz group also provides insurance-credit and factoring services particularly through Euler. The companies' activities will overlap only in France, since Euler is not active in the factoring business anywhere else. Although the joint venture will be the second supplier on the French market for factoring, with a market share below 30%, it will face significant competitors such as Factor France Heller, Factorem, Sofirec, BNP Factor and CGA, most of which are backed by banking groups.

Accordingly, the Commission concluded that the concentration would not create or strengthen a dominant position in the EU.

Michael Reynolds Allen & Overy Brussels

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