07 July 2021

POLITICO:EU to bypass banking agency with new dirty-money watchdog

The EU has a dirty-money problem — and it’s finally admitting it.

Brussels plans to strip the European Banking Authority of all its anti-money laundering duties and hand them to a new EU anti-money laundering watchdog, according to proposals seen by POLITICO.

The plans, set to be published by the European Commission on July 20 and confirming details first reported by POLITICO in January, are designed to repair much of the reputational damage the bloc endured in recent years after a string of scandals revealed a blind spot in banking supervision.

Amid concerns over the independence of the EBA’s board after the Paris-based agency failed to hold national regulators accountable for sleeping on the job, the Commission plans to hollow out the agency’s dedicated unit and instead transfer the powers to a new Anti-Money Laundering Authority (AMLA), the draft reveals.

The authority will have direct supervisory powers over financial companies across the bloc, with the power to impose fines totaling millions of euros. It will pick supervised firms depending on how exposed they are to illicit funds through cross-border business and risky clientele.

With the board of the new agency to be independent from EU countries — unlike the arrangements at the EBA — supporters say the proposals will be a major step forward in cleaning up the financial industry. Around 1 percent of European wealth is involved in “suspect activity,” the equivalent of around €160 billion.

“The EU’s approach towards money laundering, with a central role for EBA, clearly lacks teeth, as demonstrated by scandals with Danske Bank and ING over the last years,” said Finnish MEP Eero Heinäluoma, the Socialists and Democrats’ point person on anti-money laundering. “A single AML agency with clear powers and resources could be an important step forward, provided that other bottlenecks, such as the lack of harmonization of regulatory requirements … are properly addressed.”

The proposals include a single rulebook that the new watchdog would enforce, to police uniform rules on customer checks, cash limits and reporting requirements across the bloc. There’s also an initiative to improve the coordination among financial intelligence units, the national hubs that analyze reports by banks and other companies on countering suspicious activities.

However, the plan — which still needs to be hashed out in negotiations between the European Parliament and the Council of the EU — would see the agency begin direct supervision from 2026.

Noting it would take at least two years to set up a new agency, Karel Lannoo, the chief executive of Brussels’ think tank the Centre for European Policy Studies, said it would be more effective to create an independent team within the EBA than to set up something from scratch.

The fact that “member states will also need to decide where to put it” opens the door to political infighting over the location for the new watchdog while money launderers continue about their business, Lannoo said.

Reputational blow

The decision to propose a new agency is also a major blow to the EBA, which was moved to Paris from London after Brexit.

EU policymakers had considered expanding it into a more powerful body to fight illicit financiers. The regulator even received more cash and manpower last year to beef up its anti-money laundering team in response to scandals in Denmark, Estonia, Germany, Latvia, Malta, the Netherlands and Sweden.

Empowering the EBA was intended to boost coordination across the bloc to crack down on illicit funds moving within the EU's borders. But governance concerns quickly emerged over the EBA’s board, which is made of up national supervisors.

In Latvia, for example, it was the U.S. Treasury that had to act against ABLV Bank, accusing the lender of washing dirty cash tied to North Korea’s weapons program.

The Commission also made little effort to hide its dismay after EBA board members decided against punishing Denmark and Estonia for failing to spot huge amounts of suspicious funds flowing through one of Scandinavia’s largest banks. It was instead Danske Bank that owned up to its own failings, publishing a report that revealed 6,000 “non-resident” clients had funneled some €200 billion through its Estonian branch between 2007 and 2015.

POLITICO

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