Fighting dirty money

Recent money laundering scandals have pointed to the need for a more comprehensive and effective EU approach to preventing and combating money laundering and terrorist financing. In March 2020, the European Banking Federation’s (EBF) CEO Wim Mijs presented its new blueprint ‘Lifting the Curse of Dirty Money’, which features 20 policy recommendations for an effective EU Anti-Money Laundering (AML) policy.

Money laundering – an offence in its own right — is closely related to other forms of serious and organised crime, as well as the financing of terrorism. The scale of money laundering is considered to be significant and growing. The United Nations Office on Drugs and Crime (UNODC) estimates that between 2% and 5% of global GDP is laundered each year – that’s a staggering €715bn to €1.87tn (source: Europol). On the other side of the fence, banks, as financial gatekeepers, are spending billions of euros on compliance, on monitoring transactions, and on generating millions of suspicious activity reports. Despite this, criminals know how to exploit the regulatory fragmentation in Europe, letting them still move undetected vast amounts of dirty money across borders. The urgency is high and Mr Mijs’ message is clear. “Combatting financial crime essentially is a real fight against real criminals that make people suffer and undermine our society. We need a European framework that prevents this and that stops crime, instead of continuing the current tick-the-box exercise.”

The blueprint priorities

The EBF and its members proposed collective action to be taken by the private sector, governments, and law enforcement. To be specific, the four priority areas defined in the EBF blueprint consisted of the following recommendations:

• Harmonise the EU AML framework and strengthen its risk-based nature;

• Empower EU/EEA-wide supervision and law enforcement by strengthening the institutional architecture;

• Enable all parties to effectively cooperate and share information;

• Be smarter by leveraging new tools and technologies that can enhance the due diligence process.

 Mr Mijs underlines that banks really are part of the solution. “We need effective cooperation between all actors in the financial ecosystem, both public and private and public-private. This requires exchanging more information, also across borders, and harmonising the approach at a European level.” As an ardent advocate of an integrated approach, he believes that an effective fight against money laundering can only be achieved on a national level with close cooperation between government institutions and industries, preferably in public-private partnerships, and this is particularly important on an international level.

What’s on top of your agenda?

“The current system as we know it leads to defensive reporting, resulting in about 75% of the reports being false positive. This means that law enforcement agencies each week receive haystacks full of data, plus the kind request to find the needle in it. This doesn’t work. We need to strengthen the role of financial intelligence agencies on a EU-wide level, including implementing effective feedback for the financial sector on the current work of law enforcement agencies, so that banks know where to focus their attention and to ensure that notifications of suspicious activity give law enforcement agencies realistically useful, high-quality information.”

 What else needs to be done?

“We need to get rid of fragmentation by turning existing Directives into Regulation—thus achieving greater harmonisation and unified standards across all member states. In the meantime, EU members have adopted the Fifth Anti Money Laundering Directive while some countries have not even fully implemented number three or four. Another action that ranks high on our EBF list: we want the EU to have an institute or agency that will have the authority and access to the data to solve the cross-border AML jigsaw puzzle, thus making the lives of money launderers and laundromats difficult. To get there, working in public-private partnerships is key. As an example, the EU law enforcement agency Europol works very effectively with the private sector, through sector-specific Advisory Groups where crime trends are exchanged on a regular basis. The banking sector is an important operational partner in the recently launched Financial & Economic Crime Centre[NM1] , but also in the field of cybersecurity the cooperation works well, as the EBF sits in the Financial Services Advisory Group next to many other private sector partners. “

Case 1: European Money Muling Action (EMMA)

Law enforcement authorities from 31 countries, supported by Europol, Eurojust and the European Banking Federation (EBF), have stepped up their efforts to crack down on money mule schemes that rope in victims, who are often unaware that the money they are sending is part of an elaborated money laundering scheme.

 Data privacy vs. AML

One of the barriers to overcome is GDPR. In February 2020, law enforcement agency Europol was banned by the EU's own data protection watchdog, EDPS, from hosting the computer network that links EU member states' agencies that fight financial crime. The platform allows financial intelligence units, state-run bodies that operate between private firms, and law enforcement agencies to report across borders, exchange case-building data, and match names to data held by other units. The ban came as the European Commission (EC) is tightening enforcement of AML procedures in the wake of scandals that enveloped banks.  Mr Mijs says: “The thing is that the EDPS currently struggles to enforce its authority. Banks, but also other industries, expect clarity and guidance from such an authority for the bigger challenges in society, such as digital data processing, cloud, and money laundering.”

 What’s next for the EBF blueprint?

“We presented our blueprint to Mr Valdis Dombrovskis, Executive Vice President of the EC, and discussed it extensively with its AML unit, and this is reflected in the EC action plan. Following the presentation, the EC published its action plan in April and the follow-up is now underway. Everyone agrees on the importance of the topic, but the big question is 'how'? In the Netherlands, for example, it is quite common to have public-private partnerships, e.g. the Transaction Reporting Netherlands, which is a great initiative, but elsewhere in Europe this form of partnership is still less common. There’s work to be done and, as EU members, we have to take action now!”

Case 2: Liechtenstein Initiative

The EBF is collaborating with the Liechtenstein Initiative for Finance Against Slavery and Trafficking (FAST) to raise awareness and mobilise members against modern slavery and human trafficking. FAST has worked with a number of EBF members, including the Liechtenstein Bankers Association – one of its project partners – the Dutch Banking Association, and the Swiss Bankers Association to help financial institutions access practical tools to use in this effort.

About the EBF

The European Banking Federation is the voice of the European banking sector, bringing together national banking associations. Website: www.ebf.eu Twitter: @EBFeu.

 [NM1]https://www.europol.europa.eu/newsroom/news/europol-launches-european-financial-and-economic-crime-centre