The European Commission wants to strengthen supervision over banks and other financial institutions to toughen up its fight against money laundering and terrorist financing after admitting that present measures have “failed all too often.”
The EU has proposed giving the European Banking Authority, the bloc’s supervisory body for financial services, a powerful new mandate to monitor what firms are doing to tackle money laundering.
These powers include asking national regulators to investigate potential material breaches and to impose sanctions where necessary. If regulators fail to act, the EBA can override them and tackle individual banks for their failings directly.
Other, more general, measures include enhancing the quality of supervision through common standards, periodic reviews of national supervisory authorities and risk-assessments, as well as improving information collecting and data sharing between regulators, using the EBA as a “data hub.” The Commission also wants better cooperation with non-EU countries on cross-border cases and to establish a new permanent committee that brings national regulators together.
The proposals, which must be agreed by member states and the European parliament, would be fast-tracked by amending existing legislation.
What the EU has done to curb money laundering
The EU has taken the threat of money laundering seriously over the past few years: the fourth Anti-Money Laundering Directive came into force in June 2017, and the fifth version of the rules must be embedded in all EU member states by January 2020.
Both directives are designed to strengthen the EU’s regulatory framework, as well as promote and improve cooperation between anti-money laundering and prudential supervisors.
Yet recent cases such as ING and Danske Bank suggest that the EU is still as big a haven for dirty money as it ever was, and that the directives are only as useful as member states are prepared to enforce them, regulators are prepared to cooperate and share information, and banks are willing to follow the rules.
In May, the European Commission set up a working group bringing together the European Supervisory Authorities, the European Central Bank, and the chair of the Anti-Money Laundering Committee, to reflect on possible actions to ensure seamless cooperation between anti-money laundering and prudential supervisors in the European Union.
Indeed, money laundering has loomed large as a key issue for the EU to tackle in recent, high-level correspondence. The Franco-German Meseberg declaration and roadmap issued on 19 June 2018 by the French and German leaders to reinvigorate greater EU cooperation highlights money laundering as a concern, as does a letter sent by Mario Centeno, president of the Eurogroup (the EU’s committee of ministers aimed at discussing issues pertinent to the single currency) to the President of the European Council Donald Tusk on 25 June 2018.
In his State of the Union address on 12 September, Commission President Jean-Claude Juncker said: “Europeans expect a Union that protects them. Today, we propose measures to allow us to fight money laundering more effectively across borders.”
Europe likes to think it has the strongest rules in the world to prevent money laundering: the EU’s fourth and fifth Anti-Money Laundering Directives have both come into force in the past two years.
Despite these efforts, however, the Commission accepts that the rules “are not always supervised and enforced with the same high standards everywhere across the EU” and that “the system is as strong as its weakest link.”
Recent cases have urged a rethink about how closely EU banks need to be monitored, especially in light of the collapse of ABLV Bank in Latvia and the freezing of assets at Pilatus Bank in Malta following allegations of sanctions busting by its Iranian owner.
Investigations such as the Panama Papers and the Global Laundromat series, which revealed the movement of $21 billion in dirty funds from Russia, also underline how poor supervision by member states and a lack of cross-border cooperation between law enforcement agencies is allowing money to flow from countries with high levels of corruption into Europe.
And last week’s €775 million (U.S. $905 million) settlement by Dutch Bank ING for money laundering offences, coupled with reports that Danske Bank allowed up to $150 billion in dirty moneyto flow through its Estonian operations, have also done little to help Europe’s reputation as being a “world leader.”
In a memo, the Commission lays the blame for anti-money laundering failings on three factors: delayed and insufficient supervisory actions to tackle weaknesses in financial institutions' anti-money laundering risk management; a lack of coordination and information sharing between national supervisors and regulators; and a lack of cooperation with countries outside of the EU to tackle the problem globally.
The situation has led Commission Vice President Valdis Dombrovskis to concede that “anti-money laundering supervision has failed all too often in the EU.”