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The EU has a dirty money problem – and it is finally admitting it.
Brussels plans to relieve the European Banking Authority of all its anti-money laundering duties and hand it over to a new EU anti-money laundering watchdog, according to POLITICO’s proposals.
The plans, due to be released by the European Commission on July 20 and confirming the details first reported by POLITICO in January, are intended to remedy much of the reputational damage the bloc has suffered in recent years after a number of Scandals had uncovered a blind spot in banking supervision.
Given concerns about the independence of the EBA board after the Paris-based agency failed to hold national regulators accountable for sleeping in the workplace, the Commission plans to undermine the agency’s dedicated division and instead transfer the powers to one to transfer a new money laundering authority (GwG) reveals the draft.
The agency will have direct oversight powers over financial firms across the bloc, with the power to impose fines totaling millions of euros. It selects supervised companies based on how exposed they are to illicit funds through cross-border business and risky clients.
Since the board of the new agency – unlike the EBA – is to be independent of EU countries, proponents say that the proposals represent a big step forward in cleaning up the financial industry. Around 1 percent of European assets are involved in “suspicious activities”, the equivalent of around 160 billion euros.
“The EU’s approach to money laundering, in which the EBA plays a central role, is clearly inedible, as the scandals with Danske Bank and ING have shown in recent years,” said Finnish MEP Eero Heinäluoma, the contact person for Social Democrats for Anti-Money Laundering. “A single AML agency with clear powers and resources could be an important step forward, provided that other bottlenecks, such as the lack of harmonization of regulatory requirements … are properly addressed.”
The proposals contain a single set of rules that the new watchdog would enforce to monitor uniform rules for customer checks, cash limits and reporting requirements across the block. There is also an initiative to improve coordination between the Financial Intelligence Units, the national hubs that analyze reports from banks and other companies to combat suspicious activity.
However, the plan, which has yet to be negotiated in the negotiations between the European Parliament and the EU Council, provides that the agency will start direct oversight from 2026.
Given that setting up a new agency would take at least two years, Karel Lannoo, executive director of the Brussels Think Tanks Center for European Policy Studies, said it was more effective to create an independent team within the EBA than to do something from scratch rebuild.
The fact that “member states also have to decide where to put it” opens the door to political power struggles over the location of the new watchdog as money launderers go about their business, Lannoo said.
The decision to propose a new agency is also a heavy blow to the EBA, which was relocated from London to Paris after Brexit.
EU politicians had considered developing it into a more powerful body to combat illegal donors. The regulator even received more money and manpower last year to strengthen its anti-money laundering team in response to scandals in Denmark, Estonia, Germany, Latvia, Malta, the Netherlands and Sweden.
The EBA’s empowerment should encourage coordination across the bloc to tackle illegal funds moving within EU borders. But concerns about governance quickly arose on the EBA’s board of directors, which is made up of national regulators.
In Latvia, for example, the US Treasury Department had to take action against ABLV Bank, accusing the lender of laundering dirty cash in connection with the North Korean arms program.
The commission also made little effort to hide its dismay after EBA board members decided not to penalize Denmark and Estonia for failing to notice that huge amounts of suspicious funds were flowing through one of Scandinavia’s largest banks. Instead, it was Danske Bank that admitted its own failures and released a report that revealed that 6,000 “non-resident” customers had channeled around € 200 billion through their Estonian branch between 2007 and 2015.
An investigation by the EU Audit Officer found that countries had lobbied members of the EBA board to influence their investigation into Denmark and Estonia’s handling of the Danske scandal.
A spokesman for the agency told POLITICO that “the EBA remains fully committed to anti-money laundering and terrorist financing measures”.
“We know that we can play an important regulatory role in the future by working with the new AML / CFT supervisory authority at EU level to combat prudential fragmentation, promote efficient cooperation between all relevant competent authorities, and continue to do so make sure [money-laundering/counterterrorism-financing] Risks are effectively addressed in all supervisory areas and across the life cycle of the institute, ”said the spokesman.