After five directives and several anti-money-laundering (AML) scandals, one thing is clear: the existing regulatory framework is no longer fit for purpose. Indeed, despite billions in compliance expenses paid by public authorities and obliged entities, the impact of the EU’s AML policy in practice is rather modest.
According to the European Commission, around one percent (€160bn) of the EU’s annual GDP is involved in suspect financial activity such as money laundering - connected to corruption, arms and human trafficking, drug dealing, tax evasion and fraud, terrorist financing and other illicit activities.
According to Europol, between 2010-14, 2.2 percent of the estimated proceeds of crime were provisionally seized or frozen, with only 1.1 percent of the criminal profits confiscated at EU level. Clearly, change is needed.
The European Parliament made its position clear in its July 2020 resolution. Now, it’s up to the Commission, and in particular, the EU Member States, to show the same level of ambition.
Indeed, the late or non-implementation of the AML Directives in the past in several Member States led to the opening of several infringement procedures, demonstrating a lack of political interest among those States in making anti-money-laundering a priority.
“We need better cooperation and streamlining. Although not a miracle solution, a strong EU AML agency, as called for by the European Parliament, could be an important step forward”
I see three key priorities: first, an urgent need for regulatory harmonisation with a single rulebook; transposing the main parts of the directives into one regulation - with existing rules made stricter.
Indeed, the threshold for the identification of a beneficial owner of a transaction needs to be lowered. We also need interconnected, high-quality registers of beneficial owners in the Union.
Publicly accessible registers for beneficial owners of trusts and similar arrangements as well as interconnected land and real estate registers are also indispensable. Rules without effective, proportionate, and dissuasive sanctions are useless.
Second, we need to establish an effectively functioning supervisory and enforcement architecture. This will be complex.
As was outlined in a recent CEPS study, AML supervision requires the cooperation of a multitude of supervisory entities, financial and non-financial supervisors, Financial Intelligence Units (FIUs) and law enforcement officials, as well as the obliged entities themselves.
In an EU context, this means well in excess of 100 supervisory agencies, and many tens of thousands of obliged entities. Here, we need better cooperation and streamlining. Although not a miracle solution, a strong EU AML agency - as called for by the European Parliament - could be an important step forward.
Furthermore, better coordination of national FIUs is vital, as without proper and effective exchanges of transaction data, we can’t win the fight against white collar crime. The FIUs are organised nationally, and their performance leaves much to be desired. According to figures from Europol, of the 1.1 million Suspicious Activity Reports filed in the EU in 2019, only 10 percent have been further investigated by public authorities.
“We simply cannot afford to miss the opportunity to create an effective, working AML regime; by doing so we can make the EU a safer and fairer place for its citizens”
Third, money laundering does not stop at the EU’s borders. It is therefore critical that the EU has a more ambitious regime for identifying third countries with deficiencies. Again, as called for by MEPs, we need to establish a grey list of potentially high-risk third countries, in the same vein as the EU’s current approach of listing non-cooperative jurisdictions for tax purposes.
Of course, it is an illusion to think that new AML rules alone can make the problem disappear. 2020 was a ‘Grand Cru’ year - at least for the smuggling of cocaine into the EU. The custom authorities in the Port of Antwerp, leaders in the EU for coke smuggling, seized more than 65,000kg of coke with a street value of €75bn. This is estimated to represent around 10-20 percent of all coke smuggled through the Port of Antwerp.
The figures above are shocking and demonstrate that tackling the underlying crimes should be an absolute priority. Therefore, there is a clear need to harmonise existing rules, including the definition of some predicate offences of money laundering such as tax crimes.
The political expectations around the AML package are high - today more than ever. Indeed, after living through more than a year of this dramatic pandemic, which - apart from the massive human cost - has caused budgetary deficits as never seen before. We simply cannot afford to miss the opportunity to create an effective, working AML regime; by doing so we can make the EU a safer and fairer place for its citizens.