Valdis Dombrovskis wants to address divergent enforcement practices across the union © AP

Brussels has set out plans to assume new pan-European powers to crack down on money laundering after a series of scandals rocked the region’s banking sector and exposed patchy enforcement across the bloc. 

Valdis Dombrovskis, the EU executive vice-president who oversees financial services, told the Financial Times the commission would start consulting EU members over whether to create a new supervisor to oversee the anti-money laundering fight or instead hand additional powers to the European Banking Authority.

Setting out a new action plan, the commission called for the introduction of sweeping new regulations to address the divergent enforcement practices across the union that are the result of the reluctance in some EU capitals to implement anti-money laundering directives over the years. Early next year the commission will additionally propose ways of enhancing information-sharing between different member states’ financial intelligence authorities.

“If we want to be more effective, we need to do this at EU level,” Mr Dombrovskis said in a telephone interview ahead of the release of the plans. “Sometimes . . . issues were falling between two national authorities and none of the national authorities were really taking charge.”

The proposal for a new enforcement body, which would conduct on-site inspections and assess how legislation is implemented, would mark a significant expansion of Europe’s response to a wave of money-laundering scandals.

In 2018, US law enforcement authorities uncovered institutionalised money laundering at the now-defunct Latvian bank ABLV — much of it linked to Russia.

Other setbacks have included revelations that €200bn in suspicious transactions transited through Danske Bank’s Estonian branch. ING was fined €775m for compliance failings and Deutsche Bank was ensnared in a scheme that illicitly shifted criminal funds from Russia to the west.

Mr Dombrovskis said the scope of the new regime — including whether it would just handle the banking sector or a broader range of institutions — would be determined in part by whether the EU decided to create a new body or empower the EBA, the EU agency that aims to ensure consistent banking regulation.

Strengthening the EBA would narrow the remit of those new powers and probably cause controversy because the regulator was criticised for its handling of previous money-laundering affairs. 

The commission and MEPs were incensed last year when the EBA shelved its own investigation into the Danske Bank scandal despite having prepared a detailed report into supervisory failings. 

That report identified four breaches of EU law in how the bank was supervised by Danish and Estonian authorities and made recommendations to the two countries for follow-up action. Instead, the EBA’s board of supervisors, the agency's key decision-making body, voted to close the investigation without adopting any findings.

Sven Giegold, an MEP and financial and economic policy spokesperson of the Greens/EFA group, said the commission was taking “bold steps” to address Europe’s money laundering problems, but he urged the commission to go down the route of creating a new body with direct powers.

“Improving the governance of the EBA is of course needed but this does not make a banking authority a good supervisor against financial crime,” he said. “Financial crime goes far beyond banking and should be tackled by a new agency with powers in all sectors of obliged entities.”

Mr Dombrovskis said the commission would need to address “weaknesses” in the current system of governance in the EBA. The commission has in the past complained that national governments watered down EU plans in 2017 to equip the EBA with a full-time executive board, so as to ensure “effective, impartial and EU-oriented decisions”. The political ground has now shifted, Mr Dombrovskis said.

“We need more effective governance, more effective decision-making mechanisms within European Banking Authority,” said Mr Dombrovskis. “We know there have been indeed problematic cases when, for example, EBA refused to act on Danske Bank scandal, which was one of the largest money-laundering scandals in Europe.” 

Brussels has also pursued national governments for being tardy in implementing updates to the EU’s anti-money laundering legislation: the commission at one stage had formal proceedings open against every single EU country for failing to transpose the rules on to their national statute books. 

“The fact that the EU had a string of money-laundering scandals over the past few years also added to the urgency of the problem and hopefully also to the political will by member states to address the problem,” said Mr Dombrovskis. 

The need to act on money laundering has intensified with the coronavirus crisis. There had been an increase in cyber crime and also virtual money laundering, in line with a more general trend related to widespread lockdown measures which are driving more activity on to the web, said Mr Dombrovskis. “More activity happens online and it also happens that more criminal activity happens online.” 

Mauritius and Botswana added to EU ‘high risk’ list

The EU added Mauritius and Botswana as “high-risk third countries” in terms of money laundering and terror funding activities, delivering a blow to the African financial centres.

The nations were named as among 12 countries “with strategic deficiencies in their anti-money laundering and countering terrorist financing regimes that pose significant threats” to the EU. Zimbabwe and Ghana have also been added to blacklist.

“High-risk” status does not make it illegal to invest in the countries, but it will require European banks to probe clients with ties to these markets more intensively — potentially making it too costly to continue business.

Mauritius is a significant venue for European companies and investment funds seeking a stable base for operations in Africa. The Indian Ocean island has built its financial centre on international double-taxation treaties and low-tax regime.

Last year, on the basis of thousands of leaked corporate documents, the International Consortium of Investigative Journalists accused the Mauritian government of facilitating tax avoidance. The country has denied the claims. It did not immediately respond to a request for comment on the EU’s blacklisting.

The decision is “of great concern” for future investments from Europe into Africa, said a Zimbabwe-based European investor with experience of the financial systems of Botswana and Mauritius.

The EU designation overrated the risk of local banking systems, he said: “I have to provide the same documentation to my bank in Botswana as to my Austrian bank.”

Zimbabwe is already cut off from connections to the outside financial world owing to longstanding currency chaos under President Emmerson Mnangagwa and an absence of US dollar clearing.

“There are not a large amount of international criminals attempting to use Zimbabwean banks to launder money. Because they would be mad. They would lose their money,” the investor said.




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