A key report, Anti-money laundering in the EU: time to get serious, published in January 2021 by the Centre for European Policy Studies (CEPS) and the European Credit Research Institute (ECRI), shines a spotlight on the fight against money laundering in Europe, and examines what can be done to turn the tide and address some of the key challenges facing regulators, enforcement agencies, and financial institutions.

Here, drawing on extracts from the report in a Q&A format, Richard Parlour, who is also chair of the EU Task Force on Cybersecurity Policy in the Financial Sector at CEPS, outlines the key findings.

Your recent CEPS-ECRI Task Force report suggests a whole new approach is needed to combat the issue. Why? For the past three decades, regulators have struggled to implement effective anti-money laundering (AML) policies. While the scope of action has expanded greatly, the success of these policies has been very limited. Launderers and criminals, aided by technology, have become ever more inventive, which has necessitated continual adaptation of the regulatory framework.

The European Commission has proposed the creation of an EU-wide AML supervisory body. Would this help matters?This might help to improve some of the coordination and cooperation issues in AML enforcement, particularly those that cross borders. However, rather than the supervisory dimension, the regulatory side needs to be addressed first. Here, a radically new approach is needed, based on the EU’s principle of proportionality. A thorough benefit-cost analysis of the AML rules could guide the way to a more measured and effective approach.

Would a single, Europe-wide supervisory agency be the solution? AML supervision requires the cooperation of a multitude of supervisory entities, including financial and non-financial supervisors, financial intelligence units (FIUs) and law enforcement officials, as well as the obliged entities themselves. In the EU context, this means well over 100 supervisory agencies, and many tens of thousands of obliged entities. It raises the issue of EU competence, certainly in the law enforcement and judicial domains. But it is beyond debate that improvement is needed. I favour a step-by-step approach, building on the framework already put in place by the European Banking Authority, and expanding this gradually, with a distinct and more effective governance structure.

What about the role of the FIUs? This is a real bottleneck in terms of AML effectiveness. The FIUs are designated to process both cash transaction reports and suspicious activity reports (SARs). They are organised, resourced and staffed differently across member states – even their legal bases differ substantially – and their resources must be increased. According to figures from Europol, out of the 1.1 million SARs reported across the EU in 2019, only 10% were investigated by public authorities, and only 1.1% of criminal profits are eventually confiscated at the EU level.

About the expert

Richard Parlour, principal of Financial Markets Law International and chair of the EU Task Force on Cybersecurity Policy in the Financial Sector at CEPS.

Are enforcement mechanisms fit for purpose? There are many flaws. AML-related crimes are treated differently across the EU. For the ‘hard core’ money-laundering matters, cooperation among prosecutors remains tentative and too slow to tackle cross-border cases. The recent creation of the European Public Prosecutor’s Office will facilitate collaboration, but its mandate is limited to EU financial interests, and it will take time to become effective.

Is turning the AML directive, or parts of it, into a regulation the solution? This will be a step forward, but it is not a panacea. The regulation will need to have the right balance and be risk-based. And the regulatory framework does not fix the lack of cooperation between FIUs and law enforcement authorities. Any rule, therefore, needs to cover those areas that are suited to a regulation and must not defeat flexibility and targeting.

What does your report add to the action plan?

There has been no shortage of (verbal) action on AML and combating the financing of terrorism. In this report, we focus mostly on the EU and international dimension. Plenty of good analysis on money laundering is available, on what does not work, and on why it is so difficult to make headway against it. However, good data on money laundering and underlying criminality are missing; most are approximations based on no, or dubious, statistical models. While gaining a clear picture of money laundering and underlying criminality is a challenge, without it there is no effective course of action. Authorities should start by measuring the extent of illicit activity and trends in criminal behaviour, reports submitted, cases acted upon, and, critically, introducing objectives and key results and key performance indicators.

Technology can facilitate the monitoring of money-laundering activities by private entities and notification to public authorities. Closer cooperation between both can also be a way forward, but the framework needs to be correctly structured, to take mandate, justice, effectiveness, data protection and competition policy concerns into account.

This article was originally published in the June 2021 edition of The Review. 

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