The European Union's recently strengthened regulatory framework to combat money laundering and terrorist financing is one of the strictest in the world, the European Commission admits. But the Commission is of the opinion that compliance with European rules by both economic operators and the competent authorities suffers from structural weaknesses that have not prevented several large-scale scandals, such as the one involving Danske Bank, estimated at over €200 billion.
“Today’s analysis gives more proof that our strong anti-money laundering rules have not been equally applied in all banks and all EU countries. So we have a structural problem in the Union’s capacity to prevent that the financial system is used for illegitimate purposes”, said Financial Services Commissioner Valdis Dombrovskis.
In his view, transforming the ‘anti-money laundering’ directives into regulations to provide a ‘single rule book’ and transferring more supervisory powers in this area to the European level would remedy some of the shortcomings observed.
But the Juncker Commission does not go so far as to explicitly recommend the creation of a European body dedicated to the fight against money laundering, whereas the European legislator has just strengthened the specific powers of the European Banking Authority (EBA) (see EUROPE 12161/11). And the very ability of the EBA to fulfil this task is questionable, as its role was directly challenged in the Danske Bank affair (see EUROPE 12244/1).
On Wednesday, the European authority asked national supervisors to inform the audited financial institutions and that they now fully include the fight against money laundering and terrorist financing into their supervisory tasks.
The Commissioner of Justice, Věra Jourová, has estimated the financial losses caused by illegal activities related to money laundering and terrorist financing at 1% of the EU's GDP, the EU's annual budget. Noting also that there is insufficient application of the existing or soon-to-be-in-force rules, she recalled that several infringement proceedings are ongoing against Member States that do not correctly apply the 4th Anti-Money Laundering Directive (AMLD), in force since June 2017 (see EUROPE 12180/24).
As for granting greater powers at European level, Mrs Jourová welcomed the increased role of the future European Public Prosecutor's Office in criminal investigations into money laundering. But “it would require unanimity of the Member States” in the EU Council, she noted.
Four separate reports. On Wednesday, the Commission presented four detailed reports on the application of the regulatory framework.
The most interesting document concerns the analysis of ten money laundering cases that have affected the EU banking sector in recent years. The panel includes ABLV, Danske Bank, Deutsche Bank, FBME, ING, Nordea, Pilatus Bank, Satabank, Société Générale and Versobank. Although the Commission does not say from which specific case the shortcomings observed originate, it points to deficiencies in compliance with the rules in force, insufficient internal supervision – in particular in the relations between the headquarters of a group and its subsidiaries – and an excessive profit motive.
The action of the supervisory authorities is also highlighted. They have often acted too little and too late. In one Member State, the competent supervisor argued that the national culture of ‘anti-money laundering’ supervision is not to be intrusive and to rely mainly on written reports from financial institutions without carrying out on-site inspections, the Commission warned. Cross-border cases are also problematic, as the division of labour between supervisors in the home and host country of a group is sometimes misunderstood. In addition, the Commission is of the opinion that there is room for improvement in cooperation between national supervisors and the European Central Bank.
In a biennial report on money laundering and anti-terrorist financing risk management, the European institution identifies “vulnerabilities” related to the existence of certain products (e.g., prepaid bank cards) and the identification of final beneficiaries, two issues that the application, from January 2020, of the 5th AMLD should help to address. In addition, the report identifies seven new, high-risk sectors of activity, including professional football and free ports.
In addition, the interactions between the financial intelligence units (FIUs) of the Member States are analysed. Here again, shortcomings are observed, such as divergent skills between the units and differences in the nature and volume of the information exchanged. Hence the Commission's recommendation to set up a mechanism for cooperation between national units and with those of non-Member States.
By September 2020, Member States must have central registers or equivalent tools in place, which identify bank account holders and to which judicial authorities, law enforcement agencies and financial intelligence units will have access. Fifteen countries already comply with this obligation. In a specific report, the Commission analyses the advantages and disadvantages of different technological solutions that would facilitate interconnection between central registries.
List of non-Member States at risk. At this stage, the Commission is not disclosing the results of its reflection on how the EU should treat non-Member States that are at risk of money laundering and terrorist financing. In addition to a European blacklist, the development of a European ‘grey’ list of countries that have made commitments to address gaps is under consideration (see EUROPE 12295/15).
Mrs Jourová spontaneously indicated that her services were working on a redefinition of the “methodology” used to identify non-Member States at risk and thus respond to the EU Council's concerns (see EUROPE 12209/12). She expressed some frustration at the discrepancies between the positions defended by the EU Council and the European Parliament, while the OECD recently validated the Commission's analysis of “Panama”. And to promise an initiative in time “for the October Ecofin Council”.
See the documents presented: http://bit.ly/2JYGBfS (Original version in French by Mathieu Bion)