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EU level action must step up its game to avoid weaknesses in its fight against money laundering and terrorist financing, members of the European Parliament (MEPs) have agreed.
In a hearing jointly hosted by the Economic Affairs and Civil Liberties Committees, EU policymakers and guest speakers discussed the European Commission’s latest legislative proposals for fighting money laundering and terrorist financing in the EU.
The latest package, which was launched in July, includes new anti-money laundering (AML) measures for member states, creating an EU Anti-Money Laundering Authority (AMLA) and modified rules for crypto-asset transactions.
MEPs largely welcomed the package, yet fragmentation and enforcement were key concerns as the EU continues to churn out AML legislation.
Emperor's New Clothes
“We can talk about AMLD 4, 5, 6, or, maybe one day, 7, but we all know that the weak spot here is enforcement,” said Sophie in 't Veld, a Dutch MEP
The EU has the best laws in the world but the worst policy enforcement, said the MEP, who sits in the centrist, federalist Renew faction of the European Parliament.
“If you look at the example of data protection, the national DPAs one-stop-shop and then they all meet up together in the EDPB — it doesn’t work!” she quipped, mocking the protocols used in the General Data Protection Regulation.
The one-stop-shop is a legal mechanism created by the EU to ensure cooperation between data protection authorities (DPAs) in the EU.
If a company is processing data in different EU member states, it will have a lead DPA that is based where its main establishment, usually its headquarters, is located.
It has been criticised by various EU figures, including the European Data Protection Supervisor, Wojciech Wiewiórowski.
“We can talk about new legislation, but I’d like to ask the commission, why not be honest that the only way of properly enforcing European laws is by having a European body enforce the laws,” in 't Veld complained. “I’m sorry, but decentralised enforcement simply doesn’t work.”
It becomes a bit like the Emperor’s New Clothes, she said. “Look, what a great law we have!”
This proposal is really long-awaited and a good start, said Eero Heinaluoma, an MEP who sits in the centre-left wing of the European Parliament.
“After 30 years of directives, this is still a huge problem,” the Finnish MEP warned, continuing that it is hard to understand why there is still a proposal for a sixth directive in this package, and not to put these orders into regulation.
Fragmentation and resources
Ralf Seekatz, a German MEP sitting with the centre-right European People’s Party, called out member states for failing to act on suspicious transaction reports (STRs).
“Some countries have piles and piles of suspicious transaction reports to deal with, but with very little results,” he said.
A lack of resources can prompt this in certain member states, yet there is also a Brexit factor.
Lithuania, which has proved to be a beneficiary of the UK’s withdrawal from the EU due to fintechs, such as Revolut flocking to the country.
However, the large increase in the number of fintech providers came with a proportional increase in financial crime.
From January to September 2021, Lithuania’s Financial Intelligence Unit saw the number of suspicious transaction report (STR) notifications increase 20 times compared with the same period the previous year.
These concerns were reflected by external speakers at the hearing.
Mihails Kozlovs from the European Court of Auditors warned that EU bodies currently have limited means to enforce AML rules at the national level, with this leading to poor coordination and slow responses.
Meanwhile, Joshua Kirschenbaum, a non-resident fellow at the German Marshall Fund and co-author of a report on AML measures by the influential Bruegel think tank, considered the commission proposals bold and necessary but criticised the quantitative-only calculation of the risk of illicit funding in the proposal.
He also pinned his hopes on the AMLA eventually gaining more resources than is now being proposed.
He is not the only one who has seen the potential in the AMLA, with industry experts having said that it could be a gamechanger for EU enforcement of AML regulations.
Burkhard Mühl, head of the European economic and financial crime centre at Europol, hoped that Europol’s capabilities can be fully used in connection with the AMLA while avoiding duplication.
However, current proposals do not create strong linkages between law enforcement and other AML actors, Mühl warned.
Crypto-asset focus
The AML package’s emphasis on the crypto-asset industry was also questioned. This has become a matter of urgency for the EU’s authorities, with its 27 finance ministers negotiating the mandate for new crypto transfer rules in the trading bloc on Wednesday this week.
“We are all aware of the risks that stem from crypto-asset activity,” said Ondrej Kovarik, a Czech MEP.
For the liberal MEP, it makes sense for financial intelligence units in the EU to invest in technologies that can help them “tap into” the activities taking place.
However, Paul Tang, a social democratic MEP suggested the focus on how crypto-assets are being regulated in the new law was too narrow.
“There is an exclusive focus on crypto-asset service providers, and the crypto markets makes it easy to circumvent these,” he warned.
A lot is happening because there is not enough control of the crypto-assets sector, said Assita Kanko, a Belgian MEP.
“Yet, where we want to be tough on crime, it is important to keep a balance and not to overregulate,” she cautioned.
The AML package still has significant hurdles to get through, with MEPs and national politicians needing to negotiate a position before it is finalised and passed into law.
