We can­not fight cross-bor­der money laun­der­ing with lo­cal tools

Money laun­der­ing is never far from the head­lines. Last week ING in the Nether­lands and the Dan­ish Group Danske Bank were the lenders who found them­selves in the spot­light

The Star (St. Lucia) - Business Week - - FRONT PAGE - BY TOM KEATINGE, DIREC­TOR OF THE CEN­TRE FOR FI­NAN­CIAL CRIME AND SE­CU­RITY STUD­IES AT THE ROYAL UNITED SERVICES IN­STI­TUTE

Money laun­der­ing is never far from the head­lines. Last week ING in the Nether­lands and the Dan­ish Group Danske Bank were the lenders who found them­selves in the spot­light. The former has agreed to pay Euro 775m in fines for com­pli­ance fail­ures that al­lowed the al­leged laun­der­ing of hun­dreds of mil­lions of eu­ros; the lat­ter re­port­edly han­dled US$30bn in a sin­gle year through its small branch in Es­to­nia with­out rais­ing any ques­tions, adding to ex­ist­ing concerns about the anti-money laun­der­ing, or AML, con­trols at the bank.

Rev­e­la­tions such as the Panama and Paradise Pa­pers, and var­i­ous scan­dals, have re­peat­edly exposed the work­ings of schemes de­signed to avoid and evade tax, to re­cy­cle and in­vest the pro­ceeds of cor­rup­tion and to place ill-got­ten gains be­yond the reach of law-en­force­ment agen­cies.

What all these ex­am­ples have in com­mon is that they in­volve mul­ti­ple coun­tries: lawyers in Panama or the Bri­tish Virgin Is­lands for ex­am­ple; bank ac­counts in Switzer­land or Dubai; com­pa­nies in the Cay­man Is­lands or the Sey­chelles; and com­pany ser­vice providers in London or Hong Kong.

Money laun­der­ing is a global in­dus­try, op­er­at­ing seam­lessly across bor­ders. The fight against money laun­der­ing and ter­ror­ist fi­nanc­ing has been led by the Fi­nan­cial Ac­tion Task Force, the Paris-based global stan­dard-set­ter, for nearly 30 years. But we ap­pear no closer to turn­ing the tide against il­licit money flows to­day than when FATF was founded in 1989, trig­gered by the narco-dol­lars that were then wash­ing through the US bank­ing sys­tem.

Why is this? One over­rid­ing is­sue ham­pers the in­ter­na­tional re­sponse to money laun­der­ing. De­spite the transna­tional na­ture of most mon­ey­laun­der­ing schemes that al­low klep­to­crats, tax dodgers and or­gan­ised crime barons to en­joy the pro­ceeds of their crimes with im­punity, the global re­sponse re­mains tren­chantly na­tional, hindered by com­plex cross-bor­der mu­tual le­gal as­sis­tance treaties and a lack of in­for­ma­tion-shar­ing. The adage “fol­low the money” is of­ten im­pos­si­ble to im­ple­ment.

In re­cent years, a hand­ful of coun­tries have recog­nised the need for bet­ter in­for­ma­tion-shar­ing both among gov­ern­ment agen­cies and be­tween gov­ern­ments and their bank­ing sec­tors. This is vi­tal be­cause so-called sus­pi­cious trans­ac­tion re­ports from in­dus­try form the heart of the AML regime.

Part­ner­ships such as the UK’s Joint Money Laun­der­ing In­tel­li­gence Task­force or Aus­tralia’s FinTel Al­liance have brought to­gether banks and watchdogs to pool data and cre­ate a more com­plete pic­ture of the way crim­i­nals are ex­ploit­ing the fi­nan­cial sys­tem. But these part­ner­ships, wel­come though they are, re­main do­mes­tic. The in­ves­ti­ga­tions they un­der­take more of­ten than not quickly lead across a bor­der that hin­ders their work but does not slow down the crim­i­nals. Fol­low­ing these trails is time­con­sum­ing, expensive and frus­trat­ing, and in­ves­ti­ga­tions of­ten progress no fur­ther.

Nowhere is this fail­ure to cre­ate a cross­bor­der re­sponse to a transna­tional crime more in­ex­cus­able than in the EU. The EU bu­reau­cracy has pro­duced a se­ries of an­timoney laun­der­ing di­rec­tives to ad­dress this prob­lem. The fifth ver­sion was in­tro­duced in 2016, adopted in April 2018 and must be im­ple­mented by the 28 mem­ber states by 2020. (The UK has con­firmed it will do so, de­spite Brexit.) The process will take al­most four years, even as crim­i­nals take ad­van­tage of new tech­nol­ogy and evolve their tac­tics by the month.

EU-wide rules—how­ever tardy—are wel­come, but im­ple­men­ta­tion re­mains do­mes­tic. Each coun­try has its fi­nan­cial in­tel­li­gence unit, to which banks and other reg­u­lated en­ti­ties must re­port sus­pi­cious trans­ac­tions. Some coun­tries ac­tively re­sist group so­lu­tions.

The EU does much bet­ter on bor­der con­trols and other kinds of crime. Blocwide systems such as the Schen­gen In­for­ma­tion Sys­tem and Europol— Europe’s law-en­force­ment agency— op­er­ate se­cure in­for­ma­tion-shar­ing plat­forms and pro­vide a struc­tured, col­lab­o­ra­tive and co-or­di­nated lawen­force­ment re­sponse. De­spite nascent ef­forts, such a cen­tralised and ded­i­cated re­sponse to money laun­der­ing by the EU re­mains en­tirely lack­ing. The Euro­pean Bank­ing Au­thor­ity re­port­edly com­mits the equiv­a­lent of only 1.8 full-time staff mem­bers to AML.

To­day, money moves across bor­ders at the tap of an app or the click of a mouse on a trad­ing floor. But the global AML regime re­mains rooted in an age when cheques and money trans­fers took five days to clear. The crim­i­nal fi­nance in­dus­try has, like so many oth­ers, glob­alised, but the re­sponse has failed to adapt—some­thing the EU is only now propos­ing to ad­dress.

As long as we fight a cross-bor­der chal­lenge with a na­tion­ally-based re­sponse, the only ones ben­e­fit­ting are crooks, klep­to­crats and crim­i­nals.

Danske Bank re­port­edly han­dled $30bn in a sin­gle year through its small branch in Es­to­nia with­out rais­ing any ques­tions

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