On the 7th of May 2020, the European Commission, through the Executive Vice-President Valdis Dombrovskis, published a new European Union Action Plan for the prevention of money laundering and terrorist financing in the European Union. This Action Plan establishes measures that the Commission intends to adopt over the next 12 months to better harmonise, enforce, monitor and coordinate EU rules against money laundering and terrorist financing. The aim of the plan is to close existing loopholes in the anti-money laundering system and to eliminate weaknesses in EU rules. In recent years money laundering scandals have shown that the banking industry in the European Union remains extremely vulnerable to cross-border money laundering and that there are major gaps in the supervisory system and its implementation in the Member States. In the case of Danske Bank alone, in which several European banks (including Deutsche Bank) are involved, several billions have been laundered.
The Action Plan consists of six elements:
• More effective implementation of EU rules by the Member States: monitored by the EU Commission (including initiation of infringement proceedings);
• Set of rules: greater harmonisation of money laundering rules to avoid national regulatory inconsistencies (replacement of the money laundering directives by EU regulations);
• Supranational supervision, either by the European Banking Authority (EBA) or a new institution to be created;
• New coordination and support mechanism for national Financial Intelligence Units (FIUs) in the European Union;
• Enforcement of criminal law and exchange of information: legal and police cooperation based on EU instruments and institutional arrangements is essential for an adequate exchange of information. According to the EU Money Laundering Directive, the private sector must support the fight against money laundering and terrorist financing. The Commission intends to issue guidelines on the role of public-private partnerships to clarify and improve data exchange;
• Global involvement of the EU: actively participating in and promoting global anti-money laundering measures, through the Financial Action Task Force (FATF).
While most elements of the Action Plan, such as the future cooperation of FIUs, are still extremely vague and it is not clear which concrete measures the Commission will take as a result, the Action Plan already contains two specific regulatory proposals that the Commission will recommend to the European Council and the European Parliament next year:
- The replacement of the EU Money Laundering Directive, which has already been revised five times since 1990, with an EU Regulation. While EU directives must be implemented by individual Member States before they become binding, an EU Regulation has immediate effect and validity. Moreover, a Directive only defines a minimum standard for the obligations regulated. Experience has shown that directives are implemented very differently by each Member States. The Commission prospects that an EU Regulation will lead to greater harmonisation and implementation. However, it should be warned against any great illusions that a regulation alone would be able to close the existing supervisory gap comprehensively. Experience with European financial market regulation in other supervisory areas shows that EU regulations are also “experienced” differently in the Member States and that their compliance is monitored with variable intensity by national supervisory institutions. Only a strong European supervisory institution could carry out “on-the-spot” reviews on the Member States to ensure harmonised implementation. However, EU regulations do have one advantage: the legal acts can enter into force quicker in a one-step procedure. This also allows a faster response to new risks and entry points for money laundering in the financial system throughout Europe.
- The most significant proposal of the Action Plan aims at the creation of a European supervisory authority, with direct powers concerning the competent institutions in the EU Member States or additional auditing rights towards obligated institutions and companies, to be exercised independently or together with the national supervisory authorities, where appropriate. Especially in cross-border money laundering cases, the role of the new supervisory authority would have an important coordinating and harmonising function. At present, the Member States alone are responsible for monitoring the application of the relevant EU anti-money laundering provisions at national level, which results in differences in the density and quality of financial supervision. In the Action Plan, the Commission has already proposed two ways to install this supervisory authority: an EU supervisory authority either through the European Banking Authority (EBA) or through the creation of a specific EU authority. These ideas of the Commission have been known for some time. Most member states have reacted cautiously because they do not want to hand over supervisory powers to the EU level. It is to be welcomed that Germany (through the Federal Financial Supervisory Authority – BaFin) has spoken out in favour of creating a new supervisory institution and against the EBA proposal. The Paris-based European Banking Authority (EBA) is not up to this new task. So far, the EBA has been primarily a rule-setter rather than a supervisor. In addition to EU legislation, the EBA creates additional and accompanying regulations for banks and not for other obligated parties such as insurance companies, investment firms, commercial enterprises or freelancers. It is also contrary to the principle of separation of powers to bundle norm-setting and executive powers in one body. Incidentally, the EBA has not covered itself in glory in its (yet unresolved) handling of the Danske Bank scandal. The EBA is composed of representatives of the national supervisory authorities. In a dangerously corrupt spirit, this authority has not been able to exert any kind of pressure on the national supervisory authorities, which have criminally failed in this scandal, and to relieve those responsible of their functions.
It must be a requirement that the new authority’s supervisory powers are broadly based and entitled to intervene directly against the institutions and companies that are subject to obligations. Moreover, any new supervisory competence will only have added value if provided with enough qualified staff and if being able to make use of it in ongoing supervisions.