03 September 2018

Money Laundering: a Sixth Directive after 27 years of failure?

Graham Bishop writes that pooling even more of member states' nominal sovereignty to regain their sovereignty from organised crime would be the most powerful way of illustrating the longer-term integrative effect of the euro as it obliges the euro-area states to move towards an ever-closer union.

The EU enacted its first legislation against money laundering 27 years ago in 1991 in response to fears that criminal activity could jeopardise the whole financial system. As a result, many ordinary citizens probably feel they have walk about with a “recent utility bill” in their pocket to undertake quite mundane financial transactions.

For all this huge effort by ordinary citizens, the UK’s Home Office reported that only 1,435 people were convicted of money laundering in England and Wales in 2016 – just twice the number of murders committed. In the most recently published annual data only “more than 450 suspicious bank accounts” were closed and a paltry £7 million in suspected criminal funds were frozen. Yet the Home Office estimates that annual money laundering in the UK exceeds £90 billion – 5% of GDP.

The failure of successful enforcement is equally dramatic elsewhere in the EU – and elsewhere in the world. The “Panama Papers” lifted the lid a web of strange financial dealings but 2018 also witnessed a string of massive failures[1] against manifest money laundering – in Latvia, Malta and Estonia, where the local branch of Denmark’s biggest bank is implicated. 

The Latvian case has much wider implications for the EU as a whole because the Council of Europe’s (which is not an EU entity) “Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism” (MONEYVAL) concluded that Latvia’s judicial system “did not appear to consider money laundering as a priority.” The Latvian Government must now convince the Financial Action Task Force (FATF) within a year that it has resolved these problems or an EU state may be blacklisted – alongside Syria, Yemen etc.

The EU clearly has a more general problem. According to the latest Europol figures, between 0.7 and 1.2 percent of EU annual GDP is “detected as being involved in suspect financial activity” - a dramatically lower ratio than the UK’s estimate for itself. According to the Director of Europol, “The banks are spending $20 billion a year to run the compliance regime … and we are seizing 1 percent of criminal assets every year in Europe”. [...]

Full article available for consultancy clients here

© Graham Bishop