17 September 2018

Financial Times: Why EU banks have become a money launderer’s dream

The censure of Credit Suisse by Switzerland’s financial regulator over a string of anti-money laundering failings is a stark reminder of a growing international problem — and European banks’ shortcomings in dealing with it.

The laundering of “dirty money”, connected to drug trafficking, terrorism and organised crime, is on the up. The UN reckons the world could be laundering as a much as $2tn a year.

Judging by recent events, a fair chunk of that makes its way through the lax European banking system.

Europe clearly has a problem. Key is that the policing of money laundering here has been chaotic.

The EU as a whole, though, has at least five problems:

• The EU’s anti-money laundering (AML) directive has been written and rewritten five times over the past decade, and has been patchily implemented by member countries.
• Countries vary enormously in the quality of their enforcement authorities. Overall, only 5 per cent of money-laundering suspicions are followed up by the authorities.
• Some EU countries — the likes of Estonia, Latvia, Malta and Cyprus — have clearly built their economies around attracting foreign money, without effectively policing the origin of that cash.
• There is often poor co-ordination between national supervisors.
• There is no central EU database of information on money laundering.

Given all of the above, it is welcome that the European Commission announced last week that it will take the issue more seriously.

It is giving extra AML powers to the European Banking Authority, which currently oversees so-called prudential supervision, relating to the financial strength of banks.

Part of the motive looks like PR: as a Latvian, Valdis Dombrovskis, the outgoing European commissioner with responsibility for financial affairs, had to be seen to be addressing the issue, officials say.

All the same, empowering the EBA and enabling it to boost its money laundering headcount from two people to 10 should concretely help the co-ordination effort. The numbers might sound modest, but they compare favourably with the 14 prosecutors the US Department of Justice assembled in 2010, ahead of its surge of cases.

The bottom line, though, is that money-laundering banks in Europe will hardly quake as long as the EBA has no power to impose fines, and national regulators remain moderate in the quantum of their penalties.

Full article on Financial Times (subscription required)

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