Europe Ends Scandal-Plagued 2018 With Plan to Target Money Laundering

The European Council agreed recently to give greater supervisory powers to the European Banking Authority, ending a year defined by lender scandals with a plan to prevent money laundering.

One problem, however, is that the action doesn’t sufficiently address existing deficiencies spread across the bloc’s financial-services sector, according to lawyers and bankers.

The European Council first rolled out its proposals in September. Its leaders will have to reach an agreement with the European Parliament before the rules can be adopted and applied.

The European Union also earlier this year approved its fifth anti-money-laundering directive, requiring member states to implement new rules by 2020. But the rules are enforced by each individual state, leading to what many observers call a patchwork that leaves parts of the bloc open to abuse.

The U.S. has led the way on anti-money-laundering enforcement in recent years, but in the past year Europe has worked to catch up, while multiple lenders there faced scandal during the year.

Dutch prosecutors in September imposed a record fine on ING GroepNV, while Malta’s Pilatus Bank Ltd. this year lost its license to operate following allegations in the U.S. of money laundering and sanctions violations against its chairman. Meanwhile, Latvia’s ABLV Bank AS liquidated itself following U.S. allegations of money laundering, bribery and sanctions violations.

And a multilateral investigation into the Tallinn, Estonia, branch of Denmark’s Danske Bank A/S is continuing, with Estonian authorities in December making their first arrests as they probe a potential quarter-trillion-euro money-laundering scandal.

Simon Airey, a partner at the law firm Paul Hastings LLP, said there is a large disparity in anti-money-laundering controls between the best and worst banks and countries in Europe. That disparity has provided a feeding ground for organized criminals, kleptocrats and the professionals who enable them, he said.

The European Council “clearly thinks that the only way to achieve a more level playing field is through more centralized supervisory and enforcement powers,” he said.

Andris Ivanovs, a London-based associate at law firm Ropes & Gray LLP specializing in litigation and enforcement practices, said the agreement struck this month doesn’t address the fundamental vulnerabilities of money laundering that exist as a result of some member states failing to enforce the rules.

“The uncomfortable truth is that some member states will continue to be gateways into the EU financial system for proceeds of crime,” he said.