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EU weighs new anti-money laundering body in wake of scandals

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EU on money laundering

The EU is to explore the creation of a central authority to crack down on money laundering activity after a series of high-profile scandals have underlined Europe’s weaknesses in preventing dirty cash from flowing through its banks.

The bloc’s finance ministers are expected to formally mandate the European Commission to make recommendations on a new “independent” enforcement body with “direct powers,” according to a draft statement to be endorsed when they meet in December. The body’s mission would be to police financial institutions’ compliance with EU rules on customer due diligence and other safeguards.

The proposal would mark a significant ramping up of Europe’s response to a wave of money-laundering scandals over the past two years that have revealed ways for criminals to exploit the EU banking system.

In 2018, US law enforcement authorities uncovered institutionalised money laundering at the now defunct Latvian bank ABLV — much of it linked to Russia. This was just one in a series of serious blows to Europe’s trust in its banking system’s defence against crime.

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

“Criminals and terrorists are taking advantage of loopholes, [undermining] trust in our financial system and our mission to protect our economies and citizens,” French finance minister Bruno Le Maire told the Financial Times. “We need to decide now to harmonise the anti-money laundering rules across the EU and introduce stronger European supervision.”

France and the Netherlands, which is also seeking to toughen EU anti-money laundering rules, have said the best solution would be the creation of a new authority from scratch. But they fear it might take too long and have also suggested boosting the existing European Banking Authority, the pan-EU banking regulator, as an “alternative and quicker option.”

Members of the European Parliament however have criticised the EBA for failing to use its existing powers to act on the recent scandals. The EBA rejected its own internal report highlighting failings in the supervision of Danske by Danish and Estonian regulators, Brussels lawmakers have argued.

Deep governance reforms would be needed to make the EBA fit to take on a bigger role, Paris and The Hague have acknowledged in a joint paper.

The European Parliament “is deeply dissatisfied with the EBA.”, Dutch centre-left MEP Paul Tang said. “We need a very independent and firm authority.”

Europol is a possible alternative, especially given that money laundering enforcement ventures into the area of criminal law, Mr Tang said.

EU officials say new EU anti-money laundering legislation — first passed as directives at EU level and then that need to be translated into national law in each EU country — could be instead be introduced as regulations, which would apply directly to financial institutions. The anti-laundering rules would be the same across the single market and easier to enforce, the commission has argued.

Berlin “will consider the thoughts on a new European Supervisory body for the prevention of money laundering and terrorism financing in the financial sector carefully,” a spokesperson for the German finance ministry said.

“In general, we are open to think about new structures in this area,” the official said, adding that “such a step would require a solid legal basis in the form of fully harmonized [legislation].”

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