Dirty Laundry list: Will Growing Fines Stop Money Laundering in Europe?

September 20, 2018

By Amram Margalit – Leverate

The rising number of money laundering cases involving European banks, such as Danske Bank and ING Group pushed the European Union to tighten its rules to combat these illegal transactions.

Brussels, for example, cites that there is a need for greater cross-border coordination to monitor suspects of terrorism and prevent such cases from happening again.

Europe Struggles to Fight Money Laundering

The EU has been the target of criticism from regulators due to consecutive dirty money scandals. Critics accuse the union of failing to do more to stop money laundering. These scandals involve some financial institutions across Europe, such as ABLV Bank in Latvia, Pilatus Bank in Malta, Danske Bank in Denmark, and ING Groep in the Netherlands.

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EU financial supervisors explain in a paper that these incidents reveal the shortcomings of different national and EU authorities working together to prevent the illegal activity.

Findings from the European Central Bank (ECB), European Banking Authority (EBA), and the European Commission reveal:

  • EU has a lack of legal clarity on the way financial sectors should work together
  • EU has unclear instructions for data sharing between EU countries
  • EU lacks resources to enforce the rules strictly

Money laundering typically occurs in countries with weak anti-money laundering policies that minimize the chances of detection. Criminals transfer their illicit funds to established financial institutions and conceal the true source using complex transactions.

Tougher Anti-Money Laundering Rules

Regulators have suggested several ways to combat the problems with money laundering. One of them is to establish a memorandum of understanding on data sharing among ECB financial supervisors.

Europe penalizes money laundering offenders by imposing a higher fine. ING Group, in particular, agreed to pay €775 million ($900 million) in settlement fee after its failure to prevent money laundering for years. This backlash led the Dutch banking firm to analyze every transaction and customer carefully.

The European Council adopts a directive that addresses money laundering cases to strengthen its rules further. Part of the action plan is the amendment of Directive 2015/849, launched following a series of attacks in Europe in 2016.

Amendments to Directive 2015/849 include:

  • Broader access to information on beneficial ownership
  • Addressing risks related to virtual currencies and prepaid cards
  • Close collaboration between financial intelligence units
  • Better monitoring of transactions with high-risk third countries

Gaps in Supervisory Framework

The EBA admits that it lacks the power and staff to fight dirty money at financial institutions in the European Union states. EU officials recommend adding 10 money laundering officials to EBA’s current staff of two.

The European Commission proposes altering banking supervision to counter the series of dirty money scandals. The Commission, however, has yet to establish a single agency to handle financial crimes.

Additionally, the government body suggests harmonizing existing rules to investigate and punish money laundering. Currently, member states have the discretion to do so, which creates gaps in the bloc’s legal framework.

International guidelines state that negative publicity around the imposition of fines could effectively combat money laundering. European states, however, do not have an obligation to name banks accused of failing to stop financial crime.

Luxembourg, for instance, imposed a €3.8 million fine on an Industrial and Commercial Bank of China (ICBC) branch in the Grand Duchy. But Luxembourg refuses to drop the name.

Money laundering is touted as one of the most wide-scale financial crimes these days. The fines, however steep, appear not to hamper the illegal activity. It explains why EU authorities are not only proposing amendments to regulations on anti-money laundering to tackle weaknesses in financial institutions, but they are also looking into giving authorities broader power to crack down on erring banks, including imposing sanctions.

About the Author:

Amram Margalit is a professional writer who has worked in a wide range of settings, including technology companies, nonprofits, and the entertainment industry. Within these positions, Amram has provided quality content and advertising services and is currently the Content Manager at Leverate.