Corruption: EU revives blacklist proposal to tackle money laundering

Jonathan Watson

A string of developments across the European Union suggest that despite progress, the battle against corruption, and particularly money laundering, is far from won.

In September 2019, it was revealed that Dutch bank ABN AMRO is being investigated for money laundering. The same month, German authorities raided Deutsche Bank’s Frankfurt headquarters looking for information related to Danske Bank – for which Deutsche acted as a correspondent bank – and a money laundering scandal. Also in September, Swedbank agreed to allow Sweden’s Economic Crime Authority to interview a lawyer whom the bank employed to investigate its compliance with anti-money laundering (AML) regulations.

ABN AMRO says it will cooperate fully with the money laundering probe and Deutsche says it ‘remains committed to providing appropriate information to all authorised investigations’ having ‘considerably increased staff numbers in Anti-Financial Crime and more than tripled our staff since 2015.’ Danske says it has ‘taken a number of initiatives aimed at strengthening and improving our controls and systems for combating [sic] money laundering and other types of financial crime.’ Meanwhile, Swedbank says its AML work ‘has had, and still has, certain shortcomings’. It has hired Clifford Chance to look at these, with the law firm due to complete its investigation in early 2020.

Putting non-EU countries on a money laundering blacklist is a disproportionate response that will not address the core problem of ineffective implementation

Jessica Parker
Co-Chair, IBA Business Crime Committee

The European Commission’s plans to tackle the problem include reviving a blacklist of non-EU countries that it claims are unwilling to cooperate in combatting money laundering. EU Member States previously rejected an attempt to create such a list, which included Saudi Arabia and four overseas US territories. All Member States bar one blocked the initiative, claiming that the process for compiling the list lacked transparency and credibility.

The new blacklist is unlikely to include financial sanctions. However, EU banks handling payments connected to blacklisted countries and territories would have to conduct ‘enhanced due diligence’ on any cash that moves between them and the EU.

The European Parliament adopted on 19 September a resolution urging the Commission to proceed with its list and suggesting that there could be an additional ‘grey list’ of potentially high-risk third countries. This could be compiled on a similar basis to the EU’s approach to listing non-cooperative jurisdictions for tax purposes.

‘Entities in jurisdictions which would be named on those lists would feel frustrated at the lack of due process or ability to challenge those lists,’ says Jessica Parker, Co-Chair of the IBA Business Crime Committee and a partner at Corker Binning. ‘It is a disproportionate response that will not address the core problem of ineffective implementation.’

The Commission is aware that its AML efforts have fallen short in recent years. In July 2019 it released a package of reports assessing its measures – particularly the Fourth and Fifth Money Laundering Directives – and examining their shortcomings.

Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue, suggested in an statement accompanying the reports that the analysis ‘gives more proof that our strong AML rules have not been equally applied in all banks and all EU countries.’

‘We have stringent anti-money laundering rules at EU level, but we need all Member States to implement these rules on the ground,’ added Vera Jourová, Commissioner for Justice, Consumers and Gender Equality.

Dombrovskis also believes ‘we should pursue a path towards more competences at EU level’ and that ‘we should have a dedicated anti-money laundering authority in the EU’. The European Banking Authority (EBA), an agency that brings together central banks and other banking watchdogs from across the EU, may be in the best position to take on this role. Earlier this year however, its board of EU supervisors decided to shelve an investigation into the Danske Bank scandal.

José Manuel Campa, the EBA Chairperson, appeared before the European Parliament’s Committee on Economic and Monetary Affairs on 5 September and said the agency ‘has limited powers and cannot make up for weak provisions in Union Law and associated weak or ineffective supervisory practices at national level’. According to Campa, the EU must either centralise its anti-money laundering and counterterrorist financing supervision or take further ‘evolutionary’ steps if it is to fight financial crime effectively.

‘The recent large scale money laundering scandals have generally been a result of ineffective implementation of internal anti-money laundering systems rather than a lack of uniformity in the rules across the EU,’ says Parker. ‘An EU-level body supervising money laundering would help, to an extent, connect the dots in a more consistent way than currently achieved across Member States’.

Parker considers it questionable, though, whether an EU-level body would be more effective than national bodies, who are better equipped to implement enforcement in their own jurisdiction.

Whatever form a dedicated AML authority might take, for it to act more effectively, ‘it would be helpful to have a single rule book based on regulations instead of directives as it is now,’ said Dombrovskis. Campa, meanwhile, suggested that a move from a directive to a regulation-based framework would help to reduce differences between EU Member States as each country would have less freedom in deciding how to implement EU laws into their national framework.

‘You get a directive that everyone is meant to implement and then you get Member States implementing it to different levels,’ says Louise Delahunty, a member of the IBA Anti-Money Laundering Legislation Implementation Group and a consultant in McCann FitzGerald’s cross departmental Investigations Group. ‘Some implement it to a gold standard while others fall short and the European Commission has had to launch infringement proceedings against some Member States.’

It is difficult to tell how much of a priority this will be for the new European Commission, which is due to take office on 1 November 2019. Its President-elect, Ursula von der Leyen, made only one reference to money laundering in her political guidelines, which stated that ‘we need better supervision and a comprehensive policy to prevent loopholes’. There are many more battles ahead.