EU’s anti-money laundering body finally takes shape

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By:
Dominic O’Neill
Published on:

Europe is belatedly setting up an anti-money laundering (AML) supervisor, even an EU financial intelligence unit, but the plan faces tough political tests ahead.

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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.

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Nicolas Véron,
Bruegel

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.


You need to care about the weakest link in the chain 
 - Jacob Funk Kirkegaard, Peterson Institute for International Economics

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.

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Sven Giegold,
Green Party

“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.”

Weakest link

However, if some members stayed out – for example, in Scandinavia – that could scupper the whole project, as capital from there could still flow freely throughout the single market. “You need to care about the weakest link in the chain,” says Jacob Funk Kirkegaard, a fellow at the Peterson Institute for International Economics, and a former Danish civil servant.

None of those that have opted out of the new European Public Prosecutor’s Office – Denmark, Hungary, Ireland, Poland, Sweden and the UK – signed the joint paper in November. The hope is that it would be too embarrassing for any of these to resist a plan to clamp down on lax money-laundering supervision: if sheer shame doesn’t work, the international reputation of the relevant country’s banks could also suffer, harming the economy.

Speaking to supervisors across Europe this summer, Euromoney found the Swedish and Danish authorities least enthusiastic about supervisory integration, despite the scandals’ concentration in Scandinavia. Even in Denmark, though, the new centre-left government is in no mood to give what might be construed as a favour to Danske, says Kirkegaard.

The new authority would, in any case, leave a big role to national supervisors. While the ECB directly supervises all big banks, a new anti-money laundering authority will only exercise direct powers over the riskiest institutions, or when national supervision falls short.

Even the inevitable horse trading over the location could have important implications – particularly as one option is to house the supervisor in the European Banking Authority. As the EBA is based in Paris, that option could garner French support. But the last attempt to do a quick fix fell flat when it gave just a little bit more resources to the EBA.

The Danske case highlighted how incapable the EBA is of acting as a supervisor of supervisors. Earlier this year, its board – made up of national supervisors – rejected the breaches of union law by the Danish and Estonian supervisors that the EBA’s secretariat had found.

Putting the new authority in the EBA would therefore require giving it a new remit for direct supervision – and overhauling its governance to bolster its independence, at least on money laundering. It could be just as easy to create an entirely new agency, according to Véron.