EU’s anti-money laundering body finally takes shape
12 Dec 2019

The European Union is finally moving to seal a gaping chasm in the internal market’s institutional makeup, with a new anti-money laundering authority, and a common structure for financial intelligence-gathering.

In a sign of the political tests the new powers will face, the EU has already stopped short of what the European Parliament says is a vital third element – namely a financial police force with investigative capabilities.

The scandals have become so big and frequent in Europe recently that even Germany has signed up to the idea of a single supervisor for anti-money laundering controls. Deutsche Bank’s role as the main correspondent to Danske Bank Estonia, for example, adds to its compliance troubles. Now a US investigation into the scandal around Danske’s offshore clients in Estonia gives more reason for investors to steer clear of Deutsche, and other European banks.

Just last month, SEB joined other Nordic lenders hit by questions about offshore Baltic clients, causing its shares to tumble 10%, thanks to investigative reporting by the same Swedish television station that triggered the exits of Swedbank’s chief executive and chairman earlier this year.

Finance ministers pushed the issue forward in early December’s EU council meetings – passing the idea of a new authority to the European Commission – after six of them, led by the Dutch, supported a similar plan in a joint paper in November.

The council went even further than the November joint paper, as it suggests a new mechanism to bring together the work of national financial intelligence units (FIUs, which collate and sieve banks’ suspicious activity reports). This recognizes the difficulty of the EU trying to exercise direct supervision without an accompanying intelligence hub.

But integrating intelligence is tricky and contentious because the FIUs work so closely with national police, a symbol of national sovereignty. The council therefore avoided mention of a ‘European FIU’ – even if what it is suggesting sounds like one – because the EU could still strengthen existing networks of cooperation, rather than setting up a new intelligence body, says Laura Brillaud, policy officer at anti-corruption activist Transparency International.

The EU is, however, pushing for the new anti-money laundering body to cover the entire internal market. The European Central Bank (ECB) already has supervisory powers on prudential matters, but not financial-crime controls, and only in the eurozone.

Public communication on the planned new authority, albeit vague, further implies an ability to issue fines, says Nicolas Véron, fellow at Brussels think-tank Bruegel. That’s important, as the small fines of Europe’s national supervisors compared to the US have been one of its biggest causes of embarrassment.

The EU’s five biggest economies, plus Latvia, signed the joint paper in November. They recognized that keeping anti-money laundering supervision national exacerbates the scarcity of supervisory resources and conflicts of interest, including with prudential concerns, while states that uncover shortcomings may be the ones who take the biggest hits to their reputation.

This throws down the gauntlet to smaller and more Eurosceptic countries.

“Either they join, or we do it on our own,” says Sven Giegold, a German Green Party politician on the European Parliament’s economic and monetary affairs committee. “The core problem is in the bigger member states, as that’s where the money is invested.”

By Dominic O’Neill, Euromoney, 11 December 2019

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