The EU’s financial system is vulnerable to money laundering threats. Cases such as the Danske Bank scandal have made that abundantly clear. Implementation of existing legislation is poor and inconsistent, while the division of competences between responsible authorities is often unclear. Dirty money is a problem that goes beyond the financial system and is often directly linked to tax evasion, organised crime or even terrorist financing. So, there is a good case for EU and national authorities to crack down hard on money laundering.
Later this year, the European Commission will propose a new package of anti-money-laundering (AML) measures. So, what can we expect from the Commission’s proposals, and what the focus of the package be? There are three areas that can be considered ‘low-hanging fruit’: rules harmonisation, better enforcement and coordination and better implementation of existing rules.
“If every EU Member State interprets the relevant provisions only slightly differently, it will create loopholes - even if those countries have the best intentions”
Currently, the EU’s toolkit in the fight against money laundering consists mainly of the AML Directive. However, Directives need to be implemented into national law and this always allows for discretion around national transposition and interpretation. If every EU Member State interprets the relevant provisions only slightly differently, it will create loopholes - even if those countries have the best intentions. Some national governments do not even have the best intentions and deliberately select an interpretation that is more relaxed. If you have a reputation of being a little lax on AML enforcement, this can act as a competitive advantage in attracting business.
Those accidental and deliberate national deviations result in loopholes that make life for money launderers far too easy. If we want a truly single rulebook, we need to think about transposing certain elements of the current AML Directive into a regulation that is directly binding. Having the AML provisions in a regulation will create a level playing field across the Union.
Right now, one of the biggest obstacles to effective enforcement of AML rules is that even at Member State level, financial intelligence units and banking supervisors rarely exchange information. At European level, there is even less data sharing. Often enough, public authorities in theory have all the information they need to detect and fight money laundering. Unfortunately, the situation is a bit like a jigsaw puzzle, with the different pieces distributed across different agencies.
Therefore, we also need an effective mechanism to assemble the jigsaw puzzle. The Commission should therefore present not only a proposal for a European supervisory body - with its own investigative and enforcement powers - but also for a coordination mechanism. As money laundering is an issue connected to the financial system, but does go beyond banks alone, one should avoid upgrading the European Banking Authority with sweeping new anti-money-laundering powers, as is often discussed. Instead, what is needed is a standalone authority.
Implementation, implementation, implementation. The best rules to combat money laundering will have little impact if they are not implemented properly; EU Member States have to step up their game. We have seen with both the fourth and fifth anti-money-laundering Directives that national governments take their time when it comes to transposing and implementing those rules into national law.
“If we want to make tangible progress in the fight against money laundering, Member States need to take the matter much more seriously”
Often, they miss the due date by months, which is why the Commission has issued various reminders and even started infringement proceedings against several countries for transposition that was either late, shoddy or both. This failure of Member States to timely and correctly transpose European AML rules simply implies that the issue is fairly low on the priority list for many of them. If we want to make tangible progress in the fight against money laundering, national governments need to take the matter much more seriously.
Both the European Parliament and the Council have acknowledged, in principle, that we need to increase our level of ambition when it comes to fighting money laundering and terrorist financing. The Commission should make use of this momentum by making a bold proposal leading to the better harmonisation of rules, as well as a dedicated EU anti-money-laundering body. At the same time, Member States need to step up their level of commitment and start implementing European anti-money laundering rules in a more timely and thorough manner.