How the EU fails on #money-laundering

EU member states undoubtedly sighed in relief when the European Commission announced a €1.85 trillion economic recovery package to help the bloc through the coronavirus-induced economic slump in the coming years. As Commission president Ursula von der Leyen rightly argued, the package should be “Europe’s moment” – which makes the fact that this moment of triumph is blighted by the EU’s ongoing inability to fight money-laundering effectively just the more regrettable.

At a time when Brussels should be praised for proposing an unprecedented budget, it continually fails to plug financial leaks that have cost the EU untold billions over the years. The issue came to the fore again earlier this month, when the EC presented its updated list of “high-risk third countries that pose significant threats to the financial system of the Union” on May 7. The list includes 20 countries, such as Afghanistan, Barbados and Mongolia, while five countries were removed from it for this year’s edition.

The list drew immediate, wide-spread criticism because of its methodology, which was published that same day and has been regarded as seriously flawed for years. The blacklist, officials state, is compiled according to purely technical parameters, partially based on those of the the Financial Action Task Force (FATF). However, a closer look exposes that politics plays a much bigger role than officials are willing to admit.

Most blatant is the fact that the list is by definition restricted to non-EU countries – a rather self-righteous omission based on the premise that EU members’ extensive due diligence makes money-laundering nearly impossible within the EU. Yet even Brussels itself acknowledges that this is hardly true. Case in point is a Commission report from 2019 which explicitly highlighted that Europe’s legal frameworks suffers from several structural weaknesses, resulting from member states’ divergent approaches to regulating financial flows and implementing anti-money-laundering policy.

While this allows countries like Germany, France, Luxembourg and others to portray themselves as free of money-laundering contrary to realities on the ground, perhaps the most problematic issue is the politicized decision-making surrounding the list. As a recent EUObserver analysis shows, technical considerations alone rarely form the basis for the EU’s risk assessment. As a consequence, “It’s more significant who’s not on the [EU] list than who’s on it.”

Even casual observers may notice the suspicious absence of such countries as Russia, China or Saudi Arabia from the blacklist. The reason for this is simple: EU member states have consistently voted against their inclusion for fear of causing diplomatic backlash. Russian institutions and former Soviet countries have played an important role in many of the more recent banking scandals on EU territory. But because Russian banks and the European financial sector are deeply connected, it’s obvious why the EU shies away from calling Moscow out.

The clearly political undercurrents of Brussels’ anti-money-laundering policy were also starkly on display in the case of Saudi Arabia. In a direct threat to EU policy-makers, Riyadh warned of “severe negative consequences” if it were to appear on any high-risk list. A few months later, evidently spooked member states simply scrapped the document and killed the list, vary of the adverse impact on bilateral business contracts.

While these countries are thus regarded as “clean” for all intents and purposes, those who eventually are placed on the list are treated with almost palpable contempt. Worse, they’re usually added without being informed of it in advance and without a chance to discuss improvements made or challenge its inclusion in the first place. Such allegations are neither new nor limited to smaller countries. When the EC classified several US territories as problematic, the US Treasury prominently lamented the lack of opportunity to officially debate with the EU and challenge the inclusion. Though Washington pulled its weight to get off the list, less powerful countries don’t have this recourse, nor the means to contest Brussels on that front.

Given all these obvious shortfalls in form and substance, it’s clear that the list is a far cry from what it purports to be. A lot of power now rests with the EU Council and the chairs of the European Parliament’s committees on Economic and Monetary Affairs (ECON) and Civil Liberties, Justice and Home Affairs (LIBE) – who have until June 7th to approve or reject the list.

They should consider that while such criticism is uncomfortable, it’s needed for the EU members to reconsider their approach and truly strengthen the bloc’s international standing as a role model in the fight against money-laundering.

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