Transparency Watchdog Calls for End to Money Laundering ‘Impunity’

Anti-corruption watchdog Transparency International is calling on governments around the world to end what it calls impunity for money laundering.

The group’s Berlin-based international secretariat issued a statement last week urging enforcement authorities to make a top priority the prosecution of individuals or banks when faced with evidence of illegal financial transactions. Fines, the watchdog said, have not proved a deterrent.

“Evidence of money laundering abounds, but for the greatest part investigations have only resulted in corporate fines with almost no criminal prosecutions of individuals,” José Ugaz, chairman of TI’s board of directors, said in a statement. “Actions by national judicial authorities to end this criminal behavior are largely absent. This lack of senior management accountability sends a signal to the corrupt individuals and corporations laundering cash, and to their banks, lawyers, and other agents who assist them in their crimes, that in this area there is impunity. This is wrong.”

Research by Global Financial Integrity estimated the scope of money laundering in the EU to be around $70 billion in 2011, with the UN estimating global detection rates by authorities of around 1 percent.

To help stop the illicit money flows, governments should set up public registers of beneficial owners of companies, TI said, arguing such registers would help both banks conduct due diligence and regulators investigating irregularities. The group also called on banks to impose higher ethical standards from the top, and reflect those standards in remuneration policies and performance management policies.

“Transparency International will continue to vigorously campaign to unmask the corrupt and those who collude with them: the bankers, the accountants, the real estate brokers, the consultants, and the other professional intermediaries who enable the corrupt to launder their ill-gotten cash into the mainstreams of the world’s financial system,” Ugaz said. “Time behind bars for those who break the law, rather than settlements that shift the burden to shareholders, would signal a time to change.”

Just last week, the European Union moved ahead with its revision of the bloc’s anti-money laundering regime. The 4th Anti-Money Laundering Directive, approved last week by the Council of the European Union and previously agreed to by members of parliament, tightens due diligence requirements for banks, accounting firms and other professionals. Reporting thresholds for cash payments are lowered from €15,000 to €10,000.

The new regime includes stiffer penalties for both banks and individuals found to breach the rules. Banks and other financial firms face a maximum penalty of €5 million or 10 percent of annual turnover, while individuals face a maximum fine of €5 million. Maximum jail time for individuals ranged from six months to a year.

The new EU rules, which Member States will have two years to transpose into national laws, also include central registers of beneficial ownership of companies. While banks and law enforcement authorities would have access to the data, NGOs, journalists or others may access portions of the data, such as name and country of residence of beneficial owners, if they can prove a “legitimate interest” in the information.  

When European Parliament agreed to the compromise legislation in December, TI officials lamented the fact that the beneficial ownership information was not automatically accessible to the public. Carl Dolan, the director of TI’s EU office, said limiting access to the information “is likely to be more cumbersome, expensive, and could be used as an excuse to deny meaningful public access. It remains unclear how countries will assess who has a ‘legitimate interest.’”

However, the directive gives Member States the flexibility to establish public registers of beneficial ownership of companies if they wish.