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EU adopts tougher stance on money laundering

There is a serious money laundering problem in Europe and, as the dust settles following the latest scandal, the EU has announced measures to strengthen its financial rules on money laundering. While corporate treasurers might worry this could mean more know your customer (KYC) work is required of them, the new EU directive introduces the possibility of holding legal entities liable for certain money laundering activities and a range of sanctions.

While the possibility of more KYC and anti-money laundering (AML) compliance is certainly something that corporates will not welcome, no one would quarrel with the aim of quashing financial crime, which has become rife in Europe and across the world. In September 2018, a report from Danske Bank's lawyers said that €200 billion-worth of transactions over a nine-year period are thought to have been made as part of money laundering activity. This is possibly the biggest money-laundering scandal in history, involving 32 currencies, and companies registered in Cyprus, the British Virgin Islands and the Seychelles. The customers under suspicion at the Estonian branch have been traced to Russia, Azerbaijan and Ukraine and include an account whose beneficial owner is thought to be a member of the Putin family.

So the European Council's newly adopted anti money laundering directive, announced yesterday, should be seen as a positive step towards safeguarding the integrity and accountability of the European banking system. It introduces new criminal law provisions that will disrupt and block access by criminals to financial resources, including those used for terrorist activities. Importantly, the directive facilitates cross-border police and legal cooperation, which is key to tackling a problem that is transnational, not domestic. The directive will be adopted into national law by member states within two years of it being published in the EU official journal.

The new rules include:

  • establishing minimum rules on the definition of criminal offences and sanctions relating to money laundering. Money laundering activities will be punishable by a maximum term of imprisonment of four years, and judges may impose additional sanctions and measures (e.g. temporary or permanent exclusion from access to public funding, fines, etc.). Aggravating circumstances will apply to cases linked to criminal organisations or for offences conducted in the exercise of certain professional activities.
  • the possibility of holding legal entities liable for certain money laundering activities which can face a range of sanctions (e.g. exclusion from public aid, placement under judicial supervision, judicial winding-up, etc.).
  • removing obstacles to cross-border judicial and police cooperation by setting common provisions to improve investigations. For cross-border cases, the new rules clarify which member state has jurisdiction, and how those member states involved cooperate, as well as how to involve Eurojust.

No matter what regulations are put in place to combat financial crime and money laundering, many argue that only holding individuals within organisations criminally responsible and accountable will make a difference. But to do that, authorities need the resources and powers to conduct thorough investigations. Tom Keatinge, director of the centre for financial crime and security studies at the Royal United Services Institute, told the Guardian: “We know that supervision doesn’t get the bad guys. It’s investigation that gets the bad guys.”

This item appears in the following sections:
Fraud Prevention
Anti-Money Laundering Fraud Prevention
Terrorist Financing
Minimizing Fraud Procedures

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