EU to propose watchdog to tackle anti-money laundering failures exposed by FinCEN Files

A leaked European Commission draft indi­cates urgency to har­mo­nize the bloc’s rules to tack­le fail­ings that have made the region a cen­ter for finan­cial crime.

Under pres­sure to act after a series of bank­ing scan­dals involv­ing bil­lions of dol­lars in illic­it trans­ac­tions, the European Union has a plan to beef up its anti-mon­ey laun­der­ing sys­tem by cre­at­ing an agency devot­ed to tack­ling finan­cial crimes and a uni­fied rule­book for its mem­ber states.

The pro­pos­al includes uni­form rules across the bloc, an agency at the EU lev­el that can impose fines total­ing mil­lions of dol­lars, and new reg­u­la­tions tar­get­ing the providers of cryp­to-assets, accord­ing to a draft reviewed by sev­er­al news out­lets. The European Commission will final­ize the pro­pos­al by the end of July that, if approved by the European Parliament and mem­ber states, will go into effect in 2024.

Money laun­der­ing, ter­ror­ist financ­ing and organ­ised crime remain sig­nif­i­cant prob­lems which should be addressed at Union lev­el,” the Commission’s doc­u­ment said.

Last year, the International Consortium of Investigative Journalists, revealed that some of the world’s biggest banks had allowed tril­lions of dol­lars in taint­ed mon­ey to flow freely through the glob­al finan­cial system.

Based on more than 2,100 secret reports filed by banks to the U.S.Treasury and obtained by BuzzFeed News, FinCEN Files doc­u­ment­ed how Mafia groups, ter­ror financiers, arms deal­ers and sanc­tion busters were able to move mon­ey through inter­na­tion­al finan­cial insti­tu­tions with­out much over­sight. European law­mak­ers called for a more coor­di­nat­ed approach to fight­ing mon­ey laun­der­ing in the wake of the investigation.

In the European Union, the 27 mem­ber states have pri­ma­ry respon­si­bil­i­ty for super­vis­ing and enforc­ing anti-mon­ey laun­der­ing laws, and some coun­tries have been slow in imple­ment­ing stricter rules. “It is a Swiss cheese, full of holes,” a mem­ber of the European Parliament said dur­ing a debate on the FinCENFiles. Shortcomings had pre­vi­ous­ly come to light in a  2019 report by the commission.

One of the goals of the new agency is to ensure coun­tries apply the law uni­form­ly, accord­ing to Steve Ryan, an offi­cer with the commission’s depart­ment respon­si­ble for poli­cies on bank­ing and finance. He spoke at an online event orga­nized in June by Accountancy Europe, a group that rep­re­sents accoun­tants and auditors.

We want this diver­gence and weak links to come to an end,” Ryan said.

The EU’s Anti-Money Laundering Authority will have sev­er­al roles: It will super­vise cross-bor­der finan­cial enti­ties, coor­di­nate and assist nation­al finan­cial intel­li­gence units and give pol­i­cy advice to the commission.

The pro­pos­als, which could take years to imple­ment, come after sev­er­al major scan­dals tar­nished the EU’s rep­u­ta­tion by bring­ing to light the inad­e­qua­cies of its sys­tem to com­bat mon­ey laundering.

A recent audit by the European Court of Auditors found “insti­tu­tion­al frag­men­ta­tion and poor co-ordi­na­tion at EU level.”

In 2018, it was the U.S. Treasury who took action against ABLV Bank alleg­ing that the Latvian lender had facil­i­tat­ed oper­a­tions “linked to North Korea’s weapons pro­gram and cor­rup­tion con­nect­ed to Russia and Ukraine.” The American author­i­ty used its purview over dol­lar trans­ac­tions to act against the European lender.

That same year, Danske Bank, Denmark’s largest bank, admit­ted that its Estonian branch had moved more than $230 bil­lion from Russia and oth­er for­mer Soviet states and that a large part of that mon­ey was sus­pect­ed to be of ille­gal origin.

Swedish and Finnish banks have also been embroiled in mon­ey laun­der­ing scandals.

Karel Lannoo, chief exec­u­tive of the Centre for European Policy Studies, a think tank in Brussels, said that a uni­fied rule­book, rather than a EU agency with lim­it­ed pow­ers, could have a more con­crete impact on the bloc’s fight against mon­ey laun­der­ing, a crime able to “under­mine civ­il society.”

I just want to get out of people’s minds the illu­sion that the agency will solve the prob­lem,” he told ICIJ in a phone interview.

Lannoo, who co-wrote a recent report on the EU’s anti-mon­ey laun­der­ing sys­tem, said it’s cru­cial that the mem­ber states refer to a shared set of rules, such as an agreed tem­plate for banks that file sus­pi­cious activ­i­ty reports with local author­i­ties;  more rig­or­ous appli­ca­tion of com­pa­ny own­er­ship reg­istries; and a sin­gle def­i­n­i­tion of mon­ey laundering.

Data col­lec­tion to assess the scale of the prob­lem as well as the effec­tive­ness of law enforce­ment was also of para­mount impor­tance, said Lannoo, who hopes the EU’s new plan will lead to a uni­fied sys­tem more sim­i­lar to the one exist­ing in the United States.

Last month, the U.S. Financial Crimes Enforcement Network pub­lished for the first time a set of pri­or­i­ties, or “a key threat trends,” which will gov­ern the agency’s pol­i­cy to com­bat mon­ey laun­der­ing and ter­ror financing.

FinCEN is expect­ed to require banks and oth­er finan­cial insti­tu­tions under its over­sight to incor­po­rate such pri­or­i­ties into their com­pli­ance pro­gram with­in 180 days of announc­ing the priorities.

The list of “threats” includes cor­rup­tion, for­eign and domes­tic ter­ror­ism financ­ing, and cyber­crime, and will be updat­ed at least once every four years, the agency said in a statement.

ICIJ by Scilla Alecci