Money laundering is as big as the organised crime that spurs it into being. This means that it is designed to evade borders. If you have the money, there are endless ways in which you can hide it, move it and finally merge it with legitimate sources of income. The Panama Papers were a high-profile recent revelation of the highly competent and lucrative network of systems that stand ready to enable crime, corruption and wrongdoing.
The most fierce AML regulator globally is the US’s Financial Crimes Enforcement Network (FinCEN), a bureau of the US Treasury. One of the key reasons they are so fierce and feared by financial institutions worldwide is the power they have, thanks to amendments made to the Bank Secrecy Act by the PATRIOT Act, to impose ‘special measures’ against financial institutions they find being of ‘primary money laundering concern’. This includes prohibiting US financial institutions from maintaining correspondent relationships with the institution concerned. FinCEN can:
condition, restrict or cut off those institutions’ access to the US financial system, including prohibiting the provision of US correspondent accounts, effectively ending their ability to make international payments cleared in dollars (Source: Bruegel).
It is a clear recognition of the international nature of the crime and the US regulator demonstrates creative thinking beyond borders to pursue its objective.
Europe, on the other hand, still faces a serious limitation in its ability to work across borders, despite an ever-converging Union and significant action to improve anti-money laundering regulations (see the latest, fifth, revision of the EU’s AML Directive). The European Commission itself admits that cross-border action and collaboration between regulators and their counterparts in other European and other third countries is still a key weakness. The case of ABLV, Latvia’s third largest bank, which was caught facilitating illegal transactions mostly out of Russia, was actually exposed by the US regulator, even though the bank itself was directly regulated by the European Central Bank (ECB). In the words of the EU’s top financial regulator at the ECB: ‘it’s very embarrassing to depend on the US Authorities to do the job.’
Turf wars?
There is also the matter of cross-border co-operation within the EU itself.
The EU Commission is working to bolster the powers of the European Banking Authority, in recognition of the need for a central steering mechanism, not just to better coordinate with third country counterparts, but also to better manage the efforts within the EU.
AML regulations rely on Member States transposing AML Directives into their local law in a timely manner which ensures alignment with the rest of the bloc. Last year, some Member States even exceeded the deadline for transposing into law the Fourth EU AML Directive, which was enacted in 2015 (and came into force in 2017, though some Member States only managed to transpose even after this deadline, provoking legal action from the European Commission). In the words of the chair of the EBA:
If you are in the single market, the strength of anti-money-laundering controls can only be as high as the weakest link. So if you have a weak authority, then the criminal money may enter the single market. (Source: Financial Times)
Any attempt to centralise the fight against money laundering will be working to counter the damage that could be done by patchy information on how co-operation and information-sharing are meant to operate, both between different supervisors nationally as well as between Member States.
Progress is patchy
Still, despite the significant amount of work still to be done, there are reasons to be hopeful. The EU’s AML Directive is a flagship set of regulations which provides a standard for jurisdictions across the world. It is, in itself, raising awareness about the issue that perhaps did not exist to such an institutional extent beforehand. We will soon be looking at the EU Fifth AML Directive’s new rules on enhanced information-sharing about beneficial ownership.
This also means that acceptance of money laundering might also be less viable, provoking more cases to be exposed publicly. Finally, and counter to recent worrying trends towards closing borders, it really is a testament to the importance of international collaboration.