News

EU officials are considering creating a European financial intelligence unit to more effectively combat cross-border criminal activity as part of a wider plan to centralize and harmonize anti-money laundering supervision in the bloc, a draft document shows.

In a 15-page “action plan” leaked by Politico on Monday, the European Commission, the EU’s executive arm, said a “coordination and support mechanism” for the collection and distribution of financial intelligence across all member states would allow officials to more easily identify transnational laundering schemes and rapidly share information across borders.

According to the document, the umbrella body for the bloc’s 27 national FIUs could come under the purview of Europol, the EU’s law enforcement agency, become part of a new central AML supervisor, or play a much narrower advisory role as part of another body.

The unit would identify reports of suspicious activity affecting multiple EU countries, disseminate them to the relevant authorities, analyze cross-border money-laundering schemes and set operational and technological standards for national FIUs.

“Most suspicious transactions reported to FIUs have a cross-border dimension, but joint analysis remains limited,” officials said in the draft action plan. “Advanced capabilities to analyze such information in a cross-border context is necessary, especially in light of the ever-increasing complexity of money laundering cases.”

The new body could also be tasked with administering the successor to FIU.net, the outdated EU system for sharing intelligence among national units, and host a “central depository” of suspicious transaction reports, officials said.

The proposals, which were slated for publication on March 25 but will now be held back amid the coronavirus crisis gripping Europe, follow a July 2019 assessment by the Commission on how effectively European FIUs work with one another.

That review concluded that while cooperation has vastly improved in recent years, shortcomings remain, including legal hurdles to the FIUs’ ability to share data with each other, a lack of feedback to private sector firms on the quality of their reports, poor IT infrastructure and other technical difficulties.

Judith Assouly, a Paris-based consultant, told ACAMS moneylaundering.com that the plans for combining resources and bolstering information-sharing at the EU level is likely to improve both the quality of intelligence gathering and regulatory oversight.

“Pooling resources and analysis would save time particularly in terrorist financing cases, which require [authorities] to react quickly,” she said. “But we must be careful not to deprive ourselves of the expertise and local knowledge of national authorities.”

The future of AML supervision

Support for tougher, more centralized AML supervision has grown in Europe over the past two years as money-laundering scandals have engulfed financial institutions in Latvia, Denmark, Estonia, Malta and other EU countries amid concerns that national regulators either failed to stop them or reacted too slowly and tepidly after learning of them.

In response, the Commission in July published proposals for an EU-level agency to ensure compliance with AML rules that would apply uniformly across the bloc’s 27 member states in order to reduce regulatory and enforcement gaps.

The draft report published by Politico on Monday provides further detail on those plans, and official thinking on whether an entirely new agency or the existing European Banking Authority, or EBA, should be tasked with EU-wide supervision, and what firms it should supervise.

While the EBA has the obvious advantage of already being operational, officials stressed its governance and decision-making processes would need to be overhauled to guarantee its independence, and said the authority is poorly equipped to supervise nonfinancial firms.

In April 2019, the Commission criticized the EBA for dropping a probe into possible breaches of EU law by Danish and Estonian financial regulators responsible for supervising Danske Bank, which admitted seven months earlier that more than €200 billion in suspicious funds flowed through its Estonian affiliate from 2007 to 2015.

Jennifer Hanley-Giersch, managing partner at Berlin Risk, told moneylaundering.com that the wording of the draft action plan suggests the Commission favors creating a new, independent AML supervisor over handing new powers to a reformed EBA.

“There’s a strong argument for saying: ‘It might take longer and might require more resources in the first instance, but in order to implement a comprehensive AML framework, an independent organization that also integrates a coordination and support mechanism for FIUs under its roof would be more fit for purpose,'” she said.

Whichever form it takes, the bloc-wide supervisor will be equipped with “very clear powers to oversee and instruct national authorities”, including by ensuring effective implementation of internal policies and procedures and conducting on-site inspections on its own or jointly with national regulators, according to the plans.

The new body could, in an “incremental” way, come to cover all regulated sectors, supervise only the financial sector as part of an “integrated system” with national supervisors, or oversee only banks, officials said, adding that they will further assess options on the functions, scope and structure of the agency before publishing a final plan within 12 months.

Aspects of existing AML directives that are likely to be turned into “directly applicable provisions” set out in bloc-wide regulation include customer due diligence requirements, internal controls and reporting obligations, as well as provisions relating to beneficial ownership registers and proposed central bank account registries, officials said.

The Commission said it plans to submit formal legislative proposals to member states and the European Parliament in the first quarter of next year with an eye to having the measures in place by 2023.

A spokesperson for the Commission declined to comment.

Contact Gabriel Vedrenne at gvredrenne@acams.org and Koos Couvée at kcouvee@acams.org