The EU is having a rethink on its approach to money-laundering after a string of scandals across the bloc. The timing is particularly unfortunate given efforts to press on with the banking union.
Last month, the Commission suggested the European Banking Authority (EBA) should be able to intervene in member states, both in terms of putting on pressure and also having some power to enforce action.
The wave of recent scandals has shone a light on a number of regulatory vulnerabilities. Danske Bank is estimated to have facilitated 200bn EUR of illicit flows from Russia and is facing criminal proceedings in America. While just last month ING, the large Dutch bank, faced a 775m EUR fine for money laundering. Last year, Deutsche was hit with $630m fines from the UK and American over its role in handling illicit money from Russia.
The UN estimates yearly losses to money laundering to be enormous, up to 5% of global GDP, or two trillion dollars.
While the EU has regulations in place there is a lack of joined up thinking across the bloc, and the differing approaches across different member states provide fertile ground for unscrupulous actors.
The size of the fines may also need to be raised if the deterrent is to remain credible. The UK’s National Crime Agency estimated that although £90bn may have entered the country illegally, only £40m was recovered by enforcement.
The difficulty for regulators is finding an approach that curtails illegal flows without imposing unnecessary and cumbersome burdens that will eat too far into financial efficiency. UK banks claim the existing compliance regulation alone is costing them £5bn a year.