CEO of Denmark's largest lender Danske Bank
resigned as a result of money laundering scandals,
the bank said in a stock exchange announcement
September 19, 2018.
(LISELOTTE SABROE/Getty Images)
When the European Commission recently attempted to blacklist 23 countries that it accuses of maintaining deficient systems to restrict money laundering and terrorism financing, a technocratic spat quickly escalated into a diplomatic dispute.
Though only one element of sweeping reforms intended to strengthen the European Union's own anti-money laundering regime, the list not only had the predictable effect of enraging countries included on it - such as Saudi Arabia and three U.S. territories - but also provoked insurmountable criticism from within the EU itself.
list was ultimately rejected by 27 of 28 member states after a
fierce lobbying campaign, forcing the European Commission to
withdraw it and come up with a new version later this year.
In the latest twist in an already tense relationship between the U.S. and EU over such policy, the U.S. Treasury issued an irate missive in which it attacked the European Commission's "flawed" methodology and instructed financial institutions to ignore the proposed blacklist altogether...
The Treasury Department also accused the commission of undermining established multilateral efforts to develop an existing anti-money laundering blacklist maintained by the Financial Action Task Force, the global anti-money laundering watchdog.
The king of Saudi Arabia, meanwhile, expressed his concerns over the effect on trade and investment links with the EU.
These misgivings were picked up by member states,
led by the United Kingdom, which lobbied against the move internally
under pressure from both Washington and Riyadh.
Financial Action Task
Force, after all, has its shortcomings, not least of which is that
it currently only fully blacklists Iran and North Korea, omitting
some of the world's most notorious kleptocracies and tax havens.
Last year, it emerged that Denmark's Danske Bank had permitted an astonishing $234 billion in suspicious transactions from Russia and other former Soviet bloc countries to pass through its tiny Estonian branch between 2007 and 2015.
The scandal has expanded to engulf other major lenders including Germany's Deutsche Bank and Sweden's Swedbank, and is now the subject of criminal investigations in multiple countries.
It came hot on the
heels of another major Russian money laundering scheme that
precipitated the collapse of ABLV Bank in Latvia.
have often left the difficult and dirty work
of policing the global financial system
to their counterparts in Washington...
While the scale and scope of these developments is alarming, they should perhaps be understood - though by no means dismissed - as the aftershocks of several decades in which national regulators failed to keep pace with the explosive growth of international financial flows.
But the EU has been actively cracking down on illicit finance in recent years, with increasingly ambitious legislation culminating in the Fourth and Fifth Anti-Money Laundering Directives.
Among other measures, these require financial institutions to carry out enhanced due diligence procedures, expand the sectors covered by anti-money laundering laws, and require member states to gather information about the beneficial ownership of companies and trusts - something the U.S. has, controversially, not done.
As these reforms take hold
and transparency and accountability increase, a paradox arises
whereby more cases of wrongdoing are brought to light, and
perceptions of crime and corruption are heightened even though they
may actually be declining.
Most obviously, the arrangement in which a supranational political institution like the EU tries to direct diverse national authorities in overseeing a dynamic transnational economy is conceptually and operationally unwieldy.
A view is now
backed recently by an influential European Parliament committee,
that anti-money laundering policy and enforcement should be
consolidated under a single EU regulator with its own financial
police force, in order to provide coherence and certainty to such a
European banks are far more scared of U.S. authorities than their own regulators, and for good reason:
As in the realms of defense and diplomacy, it seems that European policymakers have often left the difficult and dirty work of policing the global financial system to their counterparts in Washington.
This is an
uneasy situation, and perhaps untenable given the EU's greater
exposure to the corrosive effects of illicit finance and malign
economic influence from Russia, China and elsewhere...
Failure to do so could mean that attempts to restrict money laundering - already a contentious area between Brussels and Washington - become as politicized and fragmented as sanctions have.
The blacklist debacle already shows things heading in that direction.
Presenting a united
front against illicit finance would empower the EU, the U.S. and
other democratic allies to address the darker aspects of
globalization and push back against a rising tide of authoritarian
abuse and transnational criminality.