By Vishal Marria
In the past week alone, cases of money laundering have hit headlines all around Europe. An investigation found that up to $30 billion of ex-Soviet and Russian money had potentially passed through the Estonian branch of Denmark’s largest bank, Danske Bank. It also emerged only last week that Dutch bank ING will have to pay €775m in fines after it allowed ‘structural infringement’ of the Netherlands’ Money Laundering and Terrorist Financing Act. So, what is being done about Europe’s evident money laundering problem?
In July this year, the European Commission brought into force the 5th Anti-Money Laundering Directive. In the preceding 12 months, a string of money laundering cases which involved high-profile and politically exposed individuals had placed increasing pressure on the Commission to update its policy. The same 12 months saw a series of devastating terror attacks across Europe which raised serious questions about terrorist financing and therefore confirmed the need for policy reform.
The primary focus of the latest directive is to establish a centralized and public register of companies and their ultimate beneficial owners. A typical method of money laundering involves the creation of a shell company which exists solely on paper in order to transform the profits of crimes into ostensibly legitimate assets. Making corporate ownership information public is expected to reduce the use of shell companies because this information will be open to much greater public scrutiny. The directive also requires that the data on these registers be subject to comprehensive verification mechanisms to ensure that the registers themselves cannot be manipulated.
International cooperation is another priority of the directive. Historically, criminal networks have been able to capitalize on the lack of interinstitutional communication by choosing to launder money through countries or banks where they know they are less likely to be detected. The directive is explicit about European banks and their respective Financial Intelligence Unit’s working collaboratively. Centralized bank account and corporate ownership registers must be able to interconnect and be accessible to all member states. Cooperation at this level is expected to be particularly impactful in preventing laundering designed to exploit vulnerabilities of specific member states.
The new directive is the first of its kind to take into consideration digital currencies and prepaid cards. Newer financial technology had been largely overlooked by AML policy until it became clear that they had been used to fund several terror attacks across Europe. The vehicles used in the 2016 Nice truck attack were paid for by pre-paid card because of the anonymity that these cards afford the user. The maximum amount that can be placed on these cards has already been drastically reduced but the new directive also dictates that banks must investigate the holder of any pre-paid card with a value over EUR 150. Similarly, cryptocurrencies and wallets will be held to the same standards as other financial institutions under the new directive to ensure that digital currencies cannot be used to obfuscate a trail of money.
Europe’s money laundering problem was born historically out of an apathy manifested by inefficient detection systems which have been routinely capitalized on by criminals. The EU’s 5th Anti-Money Laundering Directive is the latest in a series of policy developments which demonstrate its commitment to remedying the problem itself. The cooperation of banks on an international level should have a profound effect on the efficacy with which fraudsters operate by drastically restricting their means of deception. And, the introduction of public registers and limits on anonymous financing options restrict their opportunity further still. Europe has a long way to go before it is rid of its dirty money problem but its latest directive is another fantastic step in the right direction.