EU seeks new powers to crack down on money laundering

Brussels will seek to toughen the powers of EU agencies to crack down on money laundering and terrorist financing in the wake of high profile scandals that have shone a light on Europe’s deficiencies in tackling criminal cross-border money flows.

The European Commission is working on proposals that would give the European Banking Authority, the EU’s banking regulator, greater enforcement powers and more resources to investigate the activities of banks involved in illicit financing, according to senior officials.

In separate plans, the commission wants to give the European Public Prosecutor’s Office (EPPO), a recently created pan-EU agency, powers to launch investigations into the financing of terrorist activity across its member states from 2025.

Both initiatives, which are still being finalised, are likely to feature in European Commission president Jean-Claude Juncker’s annual “State of the Union” speech on Wednesday, and are due to be formally announced the following week.

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Brussels’ push to bolster pan-EU anti-money laundering (AML) powers follows revelations that as much as $30billion of Russian and former-Soviet money flowed through the Estonian branch of Danish lender Danske Bank in a single year.

Dutch bank ING was also forced to pay €775 million in penalties for failings in its enforcement of anti-money laundering rules earlier this month.

The cases are the latest in a string of scandals exposing how criminals have exploited weak links in Europe’s banking system to launder vast amounts of cash. Latvian bank ABLV was wound up by regulators this year after US authorities accused it of “institutionalised money laundering”, including helping finance North Korea’s nuclear programme.

Although many of the EU’s largest banks are already directly supervised by the European Central Bank, the policing of AML rules is not covered by that system. Instead, the responsibility for making sure that banks carry out customer background checks and other measures required by EU law still lies largely with national watchdogs.

Recent scandals have made the issue a top priority inside the commission and strengthened governments’ calls for stronger pan-EU supervision of national bodies.

Frustrated

One EU official said the drive to clarify the responsibilities of the EBA comes after Brussels grew frustrated with how long it took for the watchdog to initiate an investigation into Maltese authorities’ handling of Pilatus Bank, a lender in Malta that US prosecutors have alleged was set up using the criminal proceeds of a scheme to evade sanctions against Iran.

The EBA has some jurisdiction over anti-money laundering but has been hamstrung by a lack of resources. It has the equivalent of 1.8 full-time staff members working directly on money-laundering issues, according to a recent EU “reflection paper”.

The ECB has thrown its weight behind the creation of a new body dedicated to policing enforcement of money-laundering rules but the commission is not considering a new EU body for now.

“I think we need a single EU wide agency to ensure tough, effective and consistent enforcement,” Bruno Le Maire, France’s finance minister said. “We will be looking into that idea very closely.”

Rasmus Jarlov, Denmark’s business minister, said his government wants to enact some of the toughest AML rules in Europe after the Danske scandal. “We must draw lessons from it,” he said. “It would certainly make sense to have a discussion about the whole set-up in the EU.”

Brussels’ separate designs for the EU’s public prosecutor’s office would involve radically expanding its mandate from just investigating the fraudulent use of EU budget funds to the prosecution of parties guilty of terrorist financing from 2025.

Only 22 of the EU’s 28 governments have so far signed up to the prosecutor’s office and any change to its mandate would have to be agreed by all participating member states.

– Financial Times