Anti-money laundering and counter terrorism financing (AML/CFT) practices that are in line with current domestic and international regulatory standards have developed into arguably the most vital component for sustained financial security and the continued maintenance of the integrity of global financial markets large and small. With new and pervasive threats – those boosted by the growing shift to technology in daily workflows and within the general lifestyle of the average consumer – emerging on what is seemingly a daily basis, many of the world powers have been forced to adjust their individual oversight of the financial sector and increase responsibilities placed on their incorporated financial institutions to stay ahead of fraudsters and malicious cyber actors. As the battle against financial crime continues to grow around the world, policymakers of the European Union have followed the lead of their American counterparts in proposing new legislation as well as the creation of a new anti-money laundering watchdog aimed at strengthening their respective toolkit to better protect themselves and their citizens from white-collar crime.
Recent big-ticket scandals have led to mounting international pressure on the EU to step up their anti-money laundering efforts to better protect domestic and international interests. In particular, the Danske Bank scandal acted as the catalyst for this movement. Danske, at the time the largest bank in Denmark, was discovered to have been running the single largest money laundering operation in European history through their Estonian Branch from 2007 to 2015. A web of shell companies scattered around the world utilized Danske to launder an estimated €200 billion, with upwards of €800 billion of suspicious transactions of primarily Estonian, Russian and Latvian origins flowing through the bank with little-to-no scrutiny. While speculation remains as to whether these transgressions occurred knowingly or unknowingly on behalf of Danske’s executive board, bank higher-ups ultimately failed to catch on to the long-standing activities of their corrupt employees within the local Estonian branch that were all but enabling these cross-border crimes, while also failing to heed various warnings from regulators, auditors, and whistleblowers with respect to the inability of the firm’s AML safeguards to mitigate the high risks posed by a growing number of non-resident customers. A total of ten former employees in the local branch of the bank were ultimately arrested by Estonian authorities for their crimes, with charges also brought against former CEO Thomas Borgen, former Finance Director Henrik Ramlau-Hansen, and former Managing Director Lars Morch.
One of the largest takeaways from this case at the time was that neither the EU nor any of its individual member-states were even responsible for the discovery of the crimes that took place in their own backyard over the span of nearly a decade, this as the United States was the country to uncover the money laundering network that Danske was woven into. All told, Danske’s Estonian branch was ultimately forced to shutter in 2019, with the firm later pleading guilty to fraud against U.S. banks to access the American financial system and agreeing to pay a $2 billion fine in a case brought forth by the United States Department of Justice over their wrongdoing. The international embarrassment and subsequent fallout from the historic case had further contributed to the pressure for EU officials to step up their anti-money laundering efforts. The EU did however learn from the Danske case that relying on the independent financial regulators of its respective member states can serve as a mixed bag given that different countries enforce rules differently or with varying degrees of leniency. The EU has since come to recognize the need for standardization, leading to its most recent developments in this domain.
The European Commission – the executive arm of the EU tasked with proposing new legislation, managing and enforcing EU law and policies, and representing all 27 EU member states in international forums – recently shifted the priorities of its political union to encompass broader protections for the coalition and its roughly 448 million constituents. This shift included the the creation of a new EU authority coined the Anti-Money Laundering and Countering the Financing of Terrorism Authority (AMLA) that will be based in Frankfurt and begin operations in mid-2025. Adopted in late May, this new regulatory body will serve as the central authority coordinating national authorities acting in the area of prevention of money laundering and terrorism financing – namely AML/CFT supervisors and Financial Intelligence Units (FIUs).2 It has also been reported that AMLA will carry direct supervision authority over a future list of cross-border financial firms considered to be of overtly high-risk for financial crime. In addition to its supervisory powers, the AMLA will also be able to impose sanctions and financial penalties on non-compliant entities. The AMLA will ultimately be self-sufficient, this as its funding would be derived from the payment of penalties that they dish out to the financial institutions that find themselves on their list. The AMLA will reportedly cost €45.6 million to run and have the power to impose sanctions of up to €10 million or 10% of a firm’s annual turnover, whichever is higher, while also supplanting the EU’s European Banking Authority (EBA) of the role it has held since 2019 of coordinating enforcement of anti-money laundering rules.
The bolstered regulatory package is a landmark move given that it will align anti-money laundering rules throughout the EU for the first time, a move which lawmakers believe will close a number of loopholes previously available to fraudsters. Furthermore, the directive will see anti-money laundering rules extended onto new obliged entities, such as most of the crypto sector, traders of luxury goods and football clubs and agents, while also creating more stringent due diligence requirements, regulating beneficial ownership and setting a limit of €10,000 on cash payments, among other measures.2 The EU package also includes making anti-money laundering rules more detailed and compiling them into a single rulebook by the end of 2025 to prevent criminals from exploiting differences between national regulators. Altogether, these developments are a major step forward for the EU and will help to better protect a significant portion of the developed world from financial crime growing in both sophistication and scope.
“The national turf we need to protect is the European Union,” EU financial services chief Mairead McGuinness told reporters. “This package will correct those gaps in the framework.”1
Citations
- Jones, Huw. “EU Proposes Watchdog to Halt Flow of Dirty Money.” Yahoo! News, Yahoo!, 20 Jan. 2021.
- Store, Johanna. “Anti-Money Laundering: Council Adopts Package of Rules.” European Council, European Commission, 30 May 2024.
