The European Union said it is stepping up the fight against illegal cash by enhancing monitoring of money laundering and terrorist financing threats at the EU level. EU ambassadors on 19 December 2018 agreed to give the European Banking Authority (EBA) more power over anti-money-laundering (AML) supervision for financial institutions.

“Money laundering and the financing of terrorism are major security concerns. The EU has a solid legal framework to clamp down on illegal cash flows, but further efforts are needed to make sure that rules are implemented and monitored in a consistent way across the EU,” Hartwig Löger, minister for finance of Austria, which currently holds the presidency of the Council of the European Union, said in a statement. “The European Banking Authority has a crucial role to play in that regard.”

Recent cases involving money laundering in some EU banks have raised concerns that AML rules are not always supervised and enforced effectively across the European Union, creating risks for the integrity and reputation of the European financial sector, as well as for the financial stability of those banks. Strengthening the role and powers of the EBA concerning AML supervision for financial institutions would ensure that AML rules are effectively applied in all member states and all authorities involved (in particular, prudential and AML supervisors) cooperate closely with each other.

According to the agreed text, the EBA would be given the following tasks:

  • Collect information from national competent authorities relating to weaknesses identified in the context of their action to prevent or fight money laundering and terrorist financing;
  • Enhance the quality of supervision through the development of common standards and coordination among national supervisory authorities;
  • Perform risk assessments on competent authorities to evaluate their strategies and resources to address the most important emerging AML risks at EU level;
  • Facilitate cooperation with non-EU countries on cross-border cases; and
  • As a last resort if national authorities do not act, the EBA would be able to address decisions directly to individual banks.

In parallel, the European Union and its member states have engaged in a thorough review of existing practices for cooperation between anti-money-laundering and prudential supervisors. On 4 December 2018, the Council adopted an action plan setting out short-term non-legislative actions to better tackle AML challenges. In particular, the Council recommended that a “post-mortem” analysis of recent money-laundering cases in EU banks would be carried out to understand how they came about and to help shape possible additional actions.

The European rules on AML and terrorist financing have been considerably strengthened in recent years, with two consecutive reforms being adopted since 2015. The latest revision of the AML directive, the fifth AMLD, was adopted in April 2018 and is due to be transposed at national level by January 2020.

The presidency of the Council will need to negotiate with the European Parliament to reach a final agreement before the new rules can be adopted and applied.

Some doubt the effectiveness of these measures, however. “The measures, if adopted, are unlikely to substantially improve the convergence of enforcement and oversight practices across the EU member states and will not relieve the private sector of the principal burden of tackling EU’s money laundering problem,” says Judith Seddon, co-head of Ropes & Gray’s London international risk practice.

“The proposed measures do not earnestly address the fundamental vulnerability that exists as a result of some member states’ historically poor enforcement of anti-money laundering rules,” says Andris Ivanovs, an associate at Ropes & Gray’s London international risk practice. “The uncomfortable truth is that some member states will continue to be gateways into the EU financial system for proceeds of crime.”

“Therefore, when entering into commercial arrangements with their European counterparts,” Ivanovs adds, “banks should continue to consider the effectiveness of the supervisory regime to which their counterpart is subject.”

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