Wednesday

1st Mar 2017

EU proposes €5mn fines for money laundering

  • Malmstrom: 'Dirty money has no place in our economy' (Photo: bundesbank.de)

Individual staff should be fined up to €5 million and firms, such as banks, should be fined 10 percent of turnover if they flout anti-money-laundering rules, the European Commission has proposed.

It put out its latest bill on the subject with little fanfare in Strasbourg on Tuesday (5 February).

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

If you already have an account click here to login.

But its communique noted that the criminal practice, worth up to €1.2 trillion a year worldwide, creates "high risk ... to the stability of the financial system."

One of the bill's sponsors, home affairs commissioner Cecilia Malmstrom, added that it helps people who peddle drugs and guns or who shut up women in brothels to enjoy respectability and luxury lifestyles. "Dirty money has no place in our economy," she said.

Other proposed sanctions against rule flouters include withdrawal of bank licences if a bank is involved, banning executives from holding board seats and public naming and shaming.

The new bill says every company must hold reliable information on the identity of its ultimate owner and to divulge it when asked by investigators.

It says traders in "high value goods," such as diamonds or furs, should make background checks on clients who hand over €7,500 or more in cash and to report suspicious transactions.

It says casinos, including online casinos, should do checks on transactions of €2,000 or more.

It also urges EU countries to create "Financial Intelligence Units" which are to exchange information "spontaneously or upon request" to make it easier to follow cross-border money trails.

The draft law is the commission's third attempt to firm up standards since 2005.

A recent series of scandals shows there is plenty of room for improvement.

Bank records indicate that the killers of Russian anti-corruption activist Sergei Magnitsky laundered tens of millions of euros of stolen money in Austria, Cyprus, Estonia, Finland, Latvia and Lithuania.

The US in December ordered the UK-based HSBC bank to pay a €1.4 billion fine for laundering cash for Colombian and Mexican drug lords.

The US in August also accused the UK's Standard Chartered Bank of hiding €201 billion of illegal Iranian transactions.

Who's money is it anyway?

Some MEPs, who, together with EU countries, will negotiate the final form of the bill over the next two years, voiced concerns it might violate data privacy.

But others said it does not go far enough.

"As far as provisions on the 'beneficial owner' are concerned ... the opportunity to efficiently identify and combat money laundering and fiscal evasion has been lost," an independent Italian MEP, Sofia Alfano, who chairs parliament's committee on organised crime, said on Tuesday.

The Brussels-based NGO, Transparency International, noted: "Centralised national registries of beneficial ownership would make it easier for banks and other institutions to identify who the ultimate owners of companies and trusts are."

In most firms which sell real products or services, it is clear who owns what.

But people who want to hide their wealth create shell companies in lax jurisdictions such as Cyprus, Luxembourg or the UK, which are controlled by nominee directors or trustees on their behalf. The shell companies then become the beneficial owners of new shell companies in other places, multiplying layers of secrecy.

In one loophole in the EU bill, a person who owns less than 25 percent of a firm does not need to be declared.

The draft law also does nothing on "bearer shares."

Bearer shares are documents the physical possession of which confers company ownership, meaning they can be passed around to avoid detection. The UK, the EU's biggest financial centre, is one of the last jurisdictions in the world which still allows them despite World Bank pleas for abolition.

The EU bill says only that they are a "risk."

Laws don't stop crime

Loopholes aside, Transparency International added that the real problem is not lack of rules but the lack of will to enforce them.

A study on member states' compliance with existing laws by the Belgian branch of accounting firm Deloitte, published in 2011, showed big gaps in national financial cultures.

Previous EU legislation already required banks, notaries, accountants, lawyers and real estate agents to file "suspicious transaction reports [STRs]" with authorities.

Entities in Cyprus, an offshore banking centre, in 2009 filed 428 STRs, while entities in Estonia, which has a similar sized population, filed 4,534.

Entities in Austria, whose banks do big business in post-Soviet countries, filed 1,059 STRs in 2008, while entities in 2009 in Finland, which is half its size, filed 27,781.

Meanwhile, The Netherlands put the big EU countries to shame.

Dutch entities in 2009 sent in 163,933 reports.

Excluding the UK, a special case due to the size of its financial services sector, the Dutch figure was way more than France (17,310), Germany (9,046), Italy (20,660) and Spain (2,904) put together.

Analysis

Why Romania erupted in protest

Current anger over corruption laws can be traced back to a night-club fire in 2015, when many died because of lax safety standards. Romanians then realised that corruption can kill.

French police raid Le Pen's party office

Officers raid the National Front headquarters near Paris over allegations that leader Marine Le Pen used fake EU parliament contracts to pay her personal staff.

Stakeholders' Highlights

  1. Malta EU 20172018 European Year of Cultural Heritage Will Celebrate European History and Values
  2. UNICEFA Deadly Journey for Children: The Migration Route From North Africa to Europe
  3. International Partnership for Human RightsFreedom of Association and Expression Under Threat in Kazakhstan
  4. QS World MBA TourMeet with Leading International Business Schools in Brussels on March 6th
  5. EURORDISJoin Rare Disease Day and Help Advocate for More Research on Rare Diseases
  6. European Healthy Lifestyle AllianceStudents Who Are Considered Fit Get Better Grades in School
  7. QS World MBA TourMeet with Leading International Business Schools in Paris on March 4th
  8. Malta EU 2017Economic Governance: Agreement Reached on Structural Reform Support Programme for Member States
  9. Socialists & DemocratsWomen Have to Work Ten Years Longer to Match Lifetime Earnings of Men
  10. Counter BalanceTrans-Adriatic Pipeline Is a Major Risk for Banks, Warns New Analysis
  11. Swedish EnterprisesTechnology and Data Flows - Shaping the Society of Tomorrow. Join Us on 23 March
  12. UNICEFNearly 1.4 Million Children at Risk of Death as Famine Looms Across Africa and Yemen

Stakeholders' Highlights

  1. Malta EU 2017End of Roaming Fees: Council Reaches Agreement on Wholesale Caps
  2. Nordic Council of MinistersNordic Innovation House Opens in New York to Help Startups Access US Market
  3. Centre Maurits CoppietersMinorities and Migrations
  4. Salzburg Global SeminarThe Child in the City: Health, Parks and Play
  5. UNICEFNumber of Ukrainian Children Needing Aid Nearly Doubles to 1 Million Over the Past Year
  6. Centre Maurits CoppietersThe Situation of Refugee Women in Europe
  7. Salzburg Global SeminarToward a Shared Culture of Health: Charting the Patient-Clinician Relationship
  8. European Free AllianceAustria Should Preserve & Promote Bilingual and Multinational Carinthia
  9. Martens CentreShow Your Love for Democracy! Take Part in Our Contest: "If It's Broken, Let's Fix It"
  10. Malta EU 2017Landmark Deal Reached With European Parliament on Portability of Online Content
  11. Belgrade Security ForumBSF 2017: Building a Common Future in the Age of Uncertainty