Europe’s Dirty Money Problem Revives Debate on Privacy Limits: Report
14 May 2019

The European Union’s financial privacy rules could face renewed scrutiny from regulators and lawmakers in the aftermath of a €200-billion money laundering scandal that went undetected in the bloc for years, according to Bloomberg.

The disclosure that Danske Bank’s Estonian branch served as a conduit for Russian money laundering highlights “huge,” unresolved privacy issues complicating bank supervision, Jesper Berg, director general of the Financial Supervisory Authority in Copenhagen, told the media outlet.

The scandal has also prompted regulators and legislators to question openly whether Europe’s bank secrecy laws need to be amended, according to the report.

“The fact that the thousands of customers that left Danske could just cross the street and go somewhere else, to another country—there was no sharing of information there—that was really unfortunate and it should be avoided,” said Berg, who also told Bloomberg that allowing banks to share transactional and client data across borders would be more effective than creating a single EU agency to fight money laundering.

Permitting financial institutions to share such information is an “extremely good and supportable” idea, but one that would “represent a fundamental change to traditional tight banking secrecy on a philosophical level,” Samu Kurri, head of financial analysis at Finland’s Financial Supervisory Authority, told the media outlet.

Last month, the European Parliament approved a measure that would make the European Banking Authority the bloc’s primary coordinating body for supervisory matters regarding money laundering and terrorism financing.

But banks “should also be able to share some of [their anti-money laundering] data in a protected way,” the spokesman for the European Parliament’s Special Committee on Financial Crime, Tax Evasion and Tax Avoidance, Jeppe Kofod, told Bloomberg.

Financial institutions are obligated to report suspicious transactions and client behavior to the financial intelligence units of their national governments, but laws intended to protect customer privacy largely prevent bankers from sharing such specific data with other banks or even their own affiliates and subsidiaries in other countries.

What’s more, FIUs and law enforcement officials are typically barred from sharing specific data received from bank with another, thus leaving open the possibility that a suspected money launderer flagged by one institution can go undetected by other compliance departments.

Six of the Nordic region’s largest financial institutions, including Danske Bank and Swedbank, are currently cooperating with an outside firm to create a database of standardized know-your-customer (KYC) information in an effort to identify money launderers earlier, Reuters reported Saturday.

Such a system would not only protect clients from receiving redundant information requests but also allow compliance officers to identify customers who were dropped by other banks, Berg told Bloomberg.

In January, the European Supervisory Authorities published final regulatory technical standards intended to guide banks in navigating their compliance duties and group-wide policies whenever their foreign branches and subsidiaries are prohibited by law from sharing anti-money laundering data.

Under the standards, financial institutions must notify their domestic supervisors of such instances and seek customer consent for data-sharing whenever possible, among other steps.

Read more:

Nordic banks pool resources to fight money laundering

Navigating Group Compliance Risks in Third Countries: EU Regulations

EU Parliament Empowers EBA, Prudential Regulators to Fight Money Laundering

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