C19MA_078_B07_00129.pdf
DIRTY MONEY
Danièle Nouy, former Chair of the Supervisory Board at the European Central Bank
these two countries, either: money laundering accounts for up to 1.2 percent of the EU’s annual GDP, or around $225.2bn (€197.2bn) in 2018, according to a 2017 report by Europol. There are a number of reasons for this. First of all, it’s important to note the timing of Danske Bank and ING’s alleged transgressions: suspicious transactions were detected at both lenders as early as 2007, at the onset of the subprime mortgage crisis. While this doesn’t excuse the duo’s supposed lack of vigilance, it’s likely that both had greater concerns to contend with at that time, such as protecting themselves from collapse. Many financial institutions switched to ‘survival mode’ at that point, with operations trimmed down to the bare minimum. Fraudsters saw an opportunity and took it. Second, the AMLD has frequently been criticised for its inefficacy, largely due to its lack of uniform implementation. As it is a directive, not a law, EU member states have a considerable amount of freedom in the way the AMLD is amalgamated into their respective constitutions. “Some countries still haven’t embedded the full requirements of the FATF [and the AMLD], because they just don’t have that driving political agenda,” Jackson said. Moreover, the AMLD – like other AML legislation – is extremely costly to implement. The latest iteration of the AMLD – AMLD V, which is due to come into force in 2020 – is far more expensive than its predecessors, requiring banks to conduct Know Your Customer (KYC) checks on a more frequent basis. According to a 2017 whitepaper authored by Consult Hyperion, 78 | EUROPEANCEO
KYC processes currently cost the average bank $60m (€52.9m) annually, with some larger institutions spending up to $500m (€440.7m) every year on KYC and associated customer due diligence (CDD) compliance. With these exponential costs set to skyrocket, it’s little wonder just 47 percent of banks in the UK told a 2017 Thomson Reuters survey that they had taken action to implement all new regulations. Over a third of the firms surveyed reported that scarce resources remained their greatest challenge when implementing KYC and CDD processes. “Ultimately, firms may have the best will in the world to prevent money laundering, but they are running a business at the same time and they have competing [financial] pressures,” Jackson said. Many of the institutions surveyed by Thomson Reuters generated $10bn (€8.8bn) or more in revenue in 2017, meaning they should theoretically be financially robust enough to withstand increased AML costs. If institutions of this size are struggling, it doesn’t bode well for smaller banks in financially weaker EU countries. For some financial institutions, there’s also a great deal of confusion surrounding AML
The greatest issue hindering anti-money laundering measures in the EUrozone is the lack of cross-border information sharing
regulations. Jackson said: “The risk-based approach is a core principle of AML directives and a number of firms, even today, still don’t really understand how to effectively apply that. So they don’t consider the holistic application of that principle, but they apply it in a very siloed way, which can prove to be quite costly, resulting in duplication of effort.”
Traversing borders By far the greatest issue hindering AML measures in the EU, though, is the lack of crossborder information sharing and targeted action against money launderers. While each country within the bloc has its own financial intelligence unit (FIU) – whose main task is to identify suspicious transactions on behalf of prosecutors – these organisations do not share information with their international counterparts. This is particularly problematic when attempting to tackle money laundering in the eurozone as a whole, as the countries with the flimsiest AML procedures tend to bear the brunt of the crime. This, in turn, has a knockon effect on other nations within the bloc. As Jackson told European CEO: “You’re only as strong as your weakest link.” Once a money launderer has broken into the European financial system via the weakest point of access, they’re able to run amok across the entire group. There’s certainly no shortage of crafty criminals, either. As former Europol chief Rob Wainwright told Politico in 2017: “Professional money launderers – and we have identified 400 at the top, top level in Europe –