The European Union had a tough year. As if the refugee crisis, the rise of nationalist and far-right parties, and the Brexit affair weren’t enough, the 2018 headlines of European newspapers were crowded with a seemingly endless parade of money laundering scandals. Perhaps the most egregious was the case of Danske Bank, the largest bank in Denmark and a major retail bank in northern Europe. According to Danske Bank’s own report, between 2007 and 2015 the bank’s Estonian branch processed more than US$230 billion in suspicious transactions. The investigation, which is still ongoing, has already been dubbed the largest money laundering scandal in history. And there are plenty of others. In September 2018, for example, the Dutch bank ING Groep NV admitted that criminals used its accounts to launder money and agreed to pay a record US$900 million in penalties. And then in October 2018, after a string of scandals, Malta became the first EU Member State to receive an official European Commission (EC) order to strengthen enforcement of its anti-money laundering (AML) rules. By the end of 2018, it became apparent that the EU’s entire AML system needed a major overhaul.
The EU’s current AML legal framework is comprised of several components:
- The first element is the set of so-called AML Directives, the most recent of which (the sixth) was adopted in 2018. These Directives require Member States to achieve certain legal results, but do not specify the particular measures that Member States must adopt.
- Second, following the AML Directives, all EU Member States have adopted national AML laws and regulations that provide detailed guidance on a variety of topics, including the specification of different entities’ AML responsibilities, the sanctions for AML system breaches, and so forth.
- The third important component of the EU’s AML framework is the EU Regulation on information accompanying transfers of funds, which is meant to harmonize across Member States the provision of payers’ and payees’ information when persons are transferring and receiving funds. In contrast to the AML Directives, this EU regulation, like other such regulations, has a direct legal effect on all Member States. Therefore, the information accompanying transfers of funds is identical in all Member States.
Taken together, these various instruments comprise one of the most stringent AML systems in the world, at least on paper. Perhaps for that reason, many commentators, including EU and EC officials themselves, attribute the spate of money laundering scandals plaguing EU countries not so much to weaknesses in the substantive regulations but rather to poor implementation—in particular, the fragmentation of AML oversight. Last October, Bruegel, an influential European think tank, presented a report calling for the establishment of a new centralized European AML authority—one that would work closely with national law enforcement agencies and be empowered to impose fines. ECB Chief Supervisor Danièle Nouy, who is intimately familiar with the problem, seems to agree at least to some extent. After one of last year’s many money laundering scandals, she suggested that “we need a European institution that is implementing in a thorough, deep, consistent fashion this legislation in the Euro area.” In fact, the proposal to create a more centralized EU AML architecture has been around for a while. It seems that the EU has finally decided that the time has come to do something like this, as the European Central Bank (ECB) announced last November that it would set up a central AML supervision office.
To understand the justification for creating a new centralized EU AML agency, one must first understand the extent to which, under the current system, supervisory and enforcement responsibility for the EU’s AML system is divided among several institutions, and the problems that this can create: Continue reading →