To prevent the spread of dirty money worldwide, anti-money laundering (AML) programmes need to be international. Transactions can become harder to track the more they cross borders into different jurisdictions and regulatory regimes.
Brexit may put a strain on AML cooperation between the UK and the European Union this year, but Europe has been at the centre of a political crisis of its own making too. Last month, it threw down a gauntlet to the Financial Action Task Force (FATF), the body responsible for forging global standards in tackling financial crime.
In February, the European Commission published a list of countries that it believes are not tough enough on money laundering and terrorist financing and so risk allowing financial crimes to occur.
For the first time, the list contained not only the same countries identified by the FATF’s own register, but also Saudi Arabia and four US territories – American Samoa, the US Virgin Islands, Puerto Rico, and Guam.
If adopted, it would force European banks to apply tighter controls on transactions with customers and institutions in those countries.
The US Treasury protested, expressing its “significant concerns” about the inclusion of its territories and the “flawed process” by which the list was developed. It told financial institutions within the US to ignore it and continue following the FATF guidance.
Meanwhile, Saudi Arabia’s King Salman wrote to all 28 EU leaders urging them to not include his country, warning them that it could affect future trade.
In 2017, EU trade with the kingdom amounted to €143.7 billion – nearly €100 billion of which was EU exports, a significant trade surplus. In 2015 and 2016, EU arms exports alone to Saudi Arabia and its allies amounted to $76.5 billion.
Saudi Arabia joined the US in saying that the register undermined the supremacy of the FATF, while claiming that it damaged the EU’s reputation and “made its lists politicised”. Relations between Saudi Arabia and others have been strained since the murder of journalist Jamal Khashoggi last year.
On publication, the EC claimed the list had the support of member states, but if true at the time, that is no longer the case. All 28 member states have reportedly now turned against the Commission’s list, apparently validating Saudi Arabia’s and the US’ criticisms of it. “We cannot support the current proposal that was not established in a transparent and credible process,” they said.
That the fight against financial crime is vulnerable to political interference and economic coercion is perhaps no surprise, especially when some ‘approved’ parts of the world, including Denmark and the City of London, are hardly immune from money laundering – not to mention banking scandals, market rigging, and fraud.
As well as weakening the FATF’s standing, the EU’s bold move can now be seen as an own goal. Whether or not it was right to act against countries not listed by the FATF, it has swiftly backed down – at least for now – apparently to protect its trading relationships.
Such a move seems weak and unprincipled at a time when the EU has been speaking out against others’ market dominance and tactics, notably those of the US. But with economic uncertainty rising and a trade war raging between the US and China, the world needs to avoid more international tension and tit-for-tat moves, or risk another debt-fuelled recession in the West.
In the meantime, AML initiatives continue worldwide – but perhaps with an awareness that they can no longer be seen as truly impartial.
- With Brexit on the horizon and some banks pulling money, staff, and operations out of the country, the UK’s own anti-money-laundering initiatives can be seen in a new light. More than 40 MPs from both major parties have sighed an amendment to the Financial Services Bill that would oblige UK overseas territories and crown dependencies to set up a beneficial ownership register. This would force the UK’s tax havens to be more open about who owns assets in them, or runs companies out of them – something they are resistant to doing.
Be part of a discussion and connect with banking and technology leaders at The RegTech for AML Forums in London and Frankfurt this year.