AML Compliance in the EU: Regulators Increasing Enforcement

There is lots of news coming out of the European Union (EU) in regards to Anti-Money Laundering (AML) compliance. Often this does not bode well; there are enforcement actions, regulatory updates, companies scrambling to fix gaps in their processes and all-around consternation at the state of affairs.

Non-EU subsidiaries of EU banks

A new regulation involving non-EU subsidiaries of EU banks: This is a comprehensive update issued by the European Banking Authority (EBA), the regulator of banks across the EU. The new regulation aims to suppress the administrative loophole involving subsidiary branches of EU banks in countries outside the EU to ensure that they line up with main branch requirements.

The EBA will be looking at countries that actively avert EU banking regulations (including AML) from being enforced due to a prevention of information sharing. These countries are likely to include Eastern European countries, Middle East and offshore jurisdictions, all of which would benefit from not adhering to strict EU AML rules. The Regulation will apply from September 3, 2019.

The rules include:

• Carrying out a thorough risk assessment of money laundering and terrorist financing risks in the relevant third country
• Providing targeted training to members of staff where applicable
• Attempt to obtain consent from customers and/or carry out specified additional
  measures to manage risk in respect of sharing and processing customer data, disclosing information related to suspicious transactions and transferring customer data to member states.
• The institution may be obliged to terminate the relevant business relationship or transaction.

New AML blacklist

According to a report in The Financial Times, the European Commission vowed to compile a new list of countries that present a money laundering risk after EU governments rejected its idea to name and shame those involved with money laundering. Vera Jourova, EU commissioner for justice, told the paper the commission will meet with government officials to address any issues with how the commission came up with what will amount to the first blacklist of countries over money laundering and terrorist financing.

The report noted Saudi Arabia and four overseas U.S. territories are on the list. All of the 28 member states voted to block the list from being made public, arguing the list was not created in a transparent manner. The U.S. and Saudi Arabia lobbied against the list, with the two countries accusing Brussels of using it for political purposes.

EU report calls for finance authorities, AML oversight

The EU released a report recommending the creation of a police unit dedicated to investigating tax and financial crimes, as well as a watchdog organization to fight money-laundering, according to a report by Reuters. The report, which is the result of a year-long investigation by a European Union Parliament committee, also said that seven countries in the union were tax havens. The report is a response to some high-profile money laundering cases and alleged finance-related crimes in the region.

There’s the issue of so-called “golden visas” or passports, which allow individuals to, in effect, buy an EU passport. As long as someone pays the appropriate fee or makes a big enough investment, they can acquire residency or citizenship rights from certain EU countries. They then can freely travel, as can their money, within the entire EU.

There are also issues of lax regulatory agencies or compliance departments. Case in point, the Troika Laundromat, a scheme to launder billions of dollars out of Russia. Uncovered by investigative journalists earlier this year, this money laundering scandal implicated many of the EU’s biggest banks with either improper controls or oversight failures. Some of the banks include Danske Bank, Swedbank, Nordea Bank, ING Groep, Credit Agricole, Deutsche Bank, KBC Group, Raiffeisen Bank, ABN Amro Group, Cooperatieve Rabobank and the Dutch unit of Turkiye Garanti.

In the report by the Special Committee on Financial Crimes, Tax Evasion and Tax Avoidance, co-rapporteur, Jeppe Kofod (S&D, DK), said: “Europe has a serious money laundering and tax fraud problem. We have the world’s largest, richest and most integrated single market with free movement of capital, but little to no effective cross-border supervision and 28 differing national anti-money laundering and anti-tax fraud provisions. This creates a string of loopholes, which are far too easy for criminals to abuse to launder vast amounts of money as in the Danske Bank-scandal, or design highly profitable tax theft schemes like CumEx. We need tougher EU-level regulation, harsh sanctions on banks facilitating financial crimes, and a new European financial police within Europol.”

Increasing focus on AML

EU banks and other financial institutions (FIs) are well-advised to take the warning from the Special Committee seriously. Before, when one thought of EU money laundering, it was often linked to smaller countries with weak regulatory regimes. However, recent scandals are hitting major institutions from countries with strong records against money laundering. If large companies under these strong regimes are susceptible, what does that say about AML compliance programs for smaller companies in other member states? It appears that the EU is doubling-down on its AML efforts and will increase scrutiny on all FIs, and it’s vital that compliance programs be especially robust.