July 9, 2018 / 3:06 PM / 4 months ago

As anti-money laundering reform kicks in, EU seeks to close new gaps

BRUSSELS (Reuters) - New rules to tackle money laundering in the European Union took effect on Monday but the bloc already faces calls for further reforms as new shortcomings emerged after alleged wrongdoing at banks in Baltic states and Malta.

The fifth review of the EU anti-money laundering directive became binding on Monday after two years of EU talks to strengthen controls on the real owners of companies and digital payments, including virtual currencies.

But despite marking progress in the fight against large-scale fraudsters, the new rules could be born obsolete as they fail to address new gaps exposed by a series of banking scandals this year in Latvia, Estonia and Malta..

The adopted overhaul requires states to set up centralised bank account registers to smooth the work of security forces. But the national “financial intelligence units” remain weak and rarely cooperate, making it easier for criminals to get away with illegal proceeds when they transfer them across borders.

A common supervision could be more effective.

“The Commission cannot hesitate any longer in bringing forward a legislative proposal for a European anti-money laundering authority,” EU lawmaker Sven Giegold said on Monday.

His call echoes demands from the European Central Bank’s top supervisor, Daniele Nouy, who has said EU rules do not give supervisors clear powers to pull banking licences over alleged money laundering, or force the removal of bank board members if they do not pass a so-called “fit and proper” assessment.

The European Parliament has asked the ECB to step up its anti-money laundering checks under current rules before new reforms can be adopted.

The European Commission, which is in charge of proposing EU legislation, has responded to the growing pressure by setting up a group of banking watchdogs that is expected to improve “practical coordination of anti-money laundering supervision”.

Possible new ideas are expected by the end of the year, but a fresh legislative crackdown is unlikely until a new European Parliament takes office after next spring’s elections.

EU officials say in private that although there is a growing political will to act, it would be wiser to first judge the impact of the most recent rules once they are applied.

But this could take a while. EU member states have another 18 months to execute the overhaul at national level, and many of them could take much longer given the toothlessness of EU sanction proceedings against late or inadequate implementation.

Two-thirds of the EU governments have not yet applied the previous, fourth review of anti-money laundering rules which entered into force in 2015.

The new rules could also be late to address rapid changes in crypto currencies, which have been at times used for crime and money laundering.

The rules were drafted when Europe accounted for a minimal share of bitcoin and other crypto currency trading, but could be inadequate to handle the skyrocketing rise of this industry in Malta, the EU’s smallest state, where the largest global platforms have been moving since the beginning of the year.

Reporting by Francesco Guarascio; Editing by Mark Heinrich

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