After a string of scandals, the European Commission has unveiled new plans to crack down on money laundering. It’s right to take this problem seriously — but its proposals are weak. Instead of setting up a new agency and equipping it to do the job, Europe plans to keep relying on national authorities, some of which aren’t up to the task.
Banks in Denmark, the Netherlands, Latvia and Malta have all been linked to criminal inflows from countries including Russia and North Korea. The EU has moved to centralize banking supervision, but money laundering has remained a national responsibility. It was the U.S. Treasury Departmentthat found out that ABLV, a Latvian lender, was involved in “institutionalized money laundering,” prompting EU authorities to withdraw its banking license. And a report by the European Banking Authority (EBA) concluded that the Maltese regulator had “failed to conduct an effective supervision” of Pilatus Bank, a lender with links to Iran.
Brussels wants to give new powers to the EBA, so that the agency can tell national supervisors to investigate cases and consider possible sanctions. This is a step in the right direction. But the EBA isn’t equipped for the job. The London-based agency is primarily responsible for designing stress tests and overseeing prudential rules. Some aspects of money laundering fall under its review, but it currently has just two officials assigned to the task. The EU wants to add 10 more. That isn’t enough.
Most important, the EU wants domestic regulators to stay in charge. It would have been better to harmonize the rules, create a new agency, and give it lead responsibility for investigating offenders. The EU has missed an opportunity to move to a better system and improve its reputation for sound financial supervision.