EU takes step to boost monitoring of money laundering at banks

European Union governments have reached a preliminary deal to clamp down on money laundering by strengthening bank supervision through the European Banking Authority (EBA), the EU said on Wednesday.

The EU has been beset by money-laundering scandals this year, including probes into 200 billion euros ($229 billion) of payments made through Danske Bank’s Estonian branch, the collapse of Latvia’s ABLV Bank and the closure of Malta’s Pilatus Bank.

The reform was rolled out by the EU Commission in September after cases of alleged money laundering at some EU banks that “raised concerns that anti-money laundering rules are not always supervised and enforced effectively across the EU,” an EU statement said.

Under the agreed text, the EBA would be able to directly force individual banks to take measures against money laundering “as a last resort” if national authorities do not act.

The text, backed by diplomats from the 28 EU states, needs the approval of the EU parliament to become law.

However, the overhaul does not address loopholes that give states broad discretion in imposing sanctions, and does not create a dedicated agency to counter money laundering at the EU or euro zone level, as proposed by the European Central Bank.

The agreement was announced as Estonia said it had arrested 10 former employees of the local branch of Danske Bank as part of an international investigation of alleged money laundering.

Latvia’s ABLV liquidated itself after being accused by the US Treasury Department’s Financial Crimes Enforcement Network of money laundering, violating sanctions on North Korea and using bribery to influence Latvian officials.

The ECB withdrew Pilatus Bank’s licence in November, after the bank’s chairman was charged in the United States over money laundering and bank fraud.

Under the reform, the EBA, which is moving from London to Paris after Brexit, will have new powers to force national supervisors to investigate cases of suspected breaches of anti-money laundering rules.

In exceptional cases, when national supervisors do not act within set deadlines, the EBA could take measures against a bank “requiring it to take all necessary action to comply with its obligations”, the text proposed by the EU’s executive Commission said.

But decisions on penalties would remain in the hands of member states, some of whom have shown little interest in imposing or trumpeting sanctions, fearing reputational damage, reports Reuters.

International guidelines say publicising sanctions is one of the most effective tools to prevent money laundering.

The EBA already has the power to investigate breaches of money-laundering rules and did so against Malta over its supervision of Pilatus Bank.

Under the overhaul, the EBA would get more powers and staff, but it will continue to depend on vague laws that have prevented it from acting in the past.

The EBA admitted that it could not pursue its probe into Malta’s financial supervisor because of a lack of clarity in EU rules, which will not change.

Under the reforms, the EBA would get 10 new employees from two now to monitor risks of money laundering at thousands of EU banks.

The ECB has called for a new agency with more resources dedicated to this task, but these calls have been opposed by member states who prefer to maintain national control.