European Union Law: Free Movement of Capital

EU solidarity

The broad concept of EU solidarity is said to be the underlying aspiration of the integration of the people of Europe and is guaranteed by the following freedoms:

Central to the European Union is the concept of unification of nations with the emphasis representing recognition of the autonomy of individual states.

Free Movement of Capital and the Internal Market

Articles 56 – 60 EC Treaty

Articles 56 to 60 of the EC Treaty guarantee the fundamental freedom of the European Union in relation to free movement of capital. In particular Article 56 states the following:

“all restrictions on the movement of capital between Member States shall be prohibited”.

In order for the European Union Internal Market to be guaranteed it is essential that capital is able to be moved freely from European Union Member State to European Union Member State.  Free movement of capital is one of the key ingredients of the Single Market or the Internal Market as it enables integrated, open, competitive and efficient European financial markets and services.

Benefits of free movement of Capital

The free movement of capital has benefits for all of us both in an individual capacity but also for business which will then have a knock on effect for consumers.

European Citizens

Citizens are thus provided with the ability to do many operations abroad for example opening bank accounts, buying shares in non-domestic companies, investing where the best return is and even going as far as purchasing property.

European Companies

European companies are thus able to invest in and own other European companies and take an active part in their management.

The free movement of capital is therefore essential to guarantee the other fundamental freedoms of the European Union.Citizens are able to act in the same manner as the citizens of another Member State when moving there freely to undertake work due to the fact that they are able to open bank accounts and get themselves on the property ladder.

The free movement of goods and services and the internal market is also guaranteed by enabling companies from other Member States to receive investment from companies and individuals from a Member State in which they may try wish to break into the market in but previously did not have the financial capabilities or the awareness of that market.

Are there any exceptions to the free movement of capital?

There are certain exceptions to the free movement of capital within the European Union Member States and also within those countries having trade agreements with the European Union. These are mostly in relation to taxation, prudential supervision, public policy considerations and financial sanctions agreed under the Common Foreign and Security Policy.

Specifically sanctions and strict controls have been put in place in order to monitor suspicious transactions which may involve the movement of criminal funds through money laundering. If such transactions are found by financial institutions they are required to notify the requisite authorities of any such transactions.

More recently with the increasing fears concerned with terrorist activity additional controls have been put in place in order to try and track funds being used to prepare or to support terrorist attacks.