Paper

The battle against money laundering is determined by the weakest link

 The President of the Commission, Jean-Claude Juncker, launched in his State of the European Union speech in September the sixth amendment of the EU's core money laundering directive.

Summary In September Jean-Claude Juncker in his State of the European Union speech launched new tightening’s of the EU's main directive on money laundering. If the tightenings are adopted, it will be the sixth time the rules are revised. Nevertheless, the fight against money laundering seems far from being won, which a number of European cases - including the much-discussed case in Danske Bank - emphasize. The Commission thus acknowledges that the current legislation is insufficient.
 
In the EU the main responsibility for supervising banks sits with the national authorities and the banks themselves. In some areas, the EU has a coordinating function, but not a proper body with the power to combat money laundering and, for example, terrorism. The EU does not have a common database. This despite the fact that money laundering crime often crosses borders, and that today major banks have branches in several countries.
 
The Commission's new proposal aims at giving the European Banking Authority (EBA) the key responsibility for combating money laundering in the EU. The EBA must be allowed to investigate suspicions of money laundering and, if necessary, order national banks to stop money laundering. The proposal is supported, amongst others, by Denmark.
 
Denmark's situation with regards to the banking union, which aims to strengthen financial stability and supervision of financial institutions, is still unclear. According to Prime Minister Lars Løkke Rasmussen, Danske Bank's money laundering case will be a "very heavy mass on the scale" when the government decides next year on Danish participation in the banking union.
 
The Danish Government also supports the Commission's proposal to strengthen the fight against money laundering in the EU, while the Mette Frederiksen Social Democracy, in the light of the money laundering scandals and attempts of fraud with dividend tax in the EU, proposes to set up a pan-European investigation unit on money laundering and economic crime.
 
(This paper is an updated version. The Paper was first published 12th of October, 2018)

Main conclusion
  • The EU has implemented several changes to the rules on money laundering to strengthen the fight against international crime and tax evasion.
  • The rules are based on international recommendations and have received praise from NGOs because the rules create transparency and place responsibility with banks, lawyers and accountants to report to the authorities.
  • However, several cases of money laundering in different EU countries show that the legislation is insufficient, which the Commission acknowledges.
  • Combating money laundering is based on controls by financial institutions - especially banks. In case of suspicious transactions and customers, banks must report to the country's financial intelligence units.
  • Evaluations of a number of EU countries' anti-money laundering systems, including the Danish system, point to insufficient understanding by banks and their supervision, of the risk of money laundering, and that the resources for combating money laundering are too small.
  • At EU level, a number of supervising boards for respectively. banks, insurance companies and pension funds all have coordinating functions where representatives from national supervisors meet and exchange information.
  • The recent money laundering cases show that cooperation between authorities at national and cross-border authorities is inadequate. The EU does not have a proper body responsible for combating money laundering.
  • The Commission has proposed that the European Banking Authority (EBA) be given overall responsibility for combating money laundering in the EU, including the right to intervene directly with national banks.
  • The proposal is in line with the aim of the banking union on a merger of risks and centralization of supervision of the financial sector
  • The proposal is in line with the aim of the Banking Union for a merger of risks and centralization of supervision of the financial sector. Denmark has not decided about Danish membership of the Banking Union and is about to depart from the police and prosecutor's cooperation on combatting money laundering and financial fraud due to of the JHA opt-out
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