Global integration of the financial system, together with the rise of new technologies, contribute to further sophistication and development of financial crime. To fight against it, a considerable amount of resources is invested by both the public and private sectors. European banks invest huge amounts in security and wider compliance systems, while also filing millions of reports to authorities. Regrettably, this fight has proven unbalanced, with criminals adapting faster than regulation.
The original aim of AML/CFT compliance requirements is to detect and prevent financial crime. Over time, the prescriptive elements of the Anti-money Laundering and Countering the Financing of Terrorism (AML/CFT) regime have created a division between the management of financial crime risk and the management of financial crime compliance risk, with the latter overwhelming the former.
Money laundering is much more than a compliance problem. It is often connected to organised crime gangs and other threats that are extremely harmful for the European society as a whole: human trafficking, illegal drugs’ crime and associated street violence, counterfeiting and smuggling, financial fraud, corruption and environmental crime. The ineffectiveness of the current framework means the EU should consider, after 30 years of regulated AML/CFT, a critical review of its AML/CFT regime. This paper is calling for a realignment of the framework to return to founding principles of AML/CFT regulation and maximise its effectiveness: mitigating the risks of facilitating money laundering through the financial system.
Fighting money laundering is different from fighting other crimes, as regulated private sector entities are expected to play a crucial role in detecting it. Among those entities that by law are obliged to report suspicious or unusual transactions, such as notaries or lawyers, banks are the gatekeepers of the financial system i.e. they are the access point to financial and payment services. As such, banks are by far the largest contributors of suspicious activity / transaction reports (SARs / STRs) to public authorities, despite the fact that today many other actors could play a more active role in detecting organized crime and terrorist activities.
In the light of recent money laundering cases, the EBF recognises that some European banks may have not been fully successful in complying consistently with their obligations and in playing a full role as effective gatekeepers of the European financial ecosystem. The banking sector as a whole acknowledges that more effective effort needs to be made, not only because of certain deficiencies observed regarding the required compliance with certain AML/CFT rules, but also because even when complying with the applicable rules, the actual results which come from preventing money laundering can prove disappointing unless supplemented with better targeted efforts to identify and tackle the underlying threats. It is time to address those shortcomings of the framework which have been so far disregarded.
One of the main reasons why the framework has proven to be ineffective in many cases is that it is easier to address financial crime regulations through a tick-the-box rule-based exercise instead of an effective and well informed exercise in risk mitigation and suspicious activity reporting. This needs to change. The existing rules are disproportionate, inflexible and provide neither obliged entities nor supervisors with the appropriate tools, which should be financial crime risk-based instead of rule-based and should support a more holistic threat picture and intelligence-led prioritisation of efforts.
The banking sector sees itself as being in the forefront of the fight against financial crime. It understands that to be effective this fight cannot remain solely in the hands of the public authorities or solely in the hands of the industry. It has mobilised itself to support legislative and policy reforms in a number of jurisdictions as well as at European level. Banks are part of the solution and must be considered as such.
The EBF, as the voice of European banks, aims to be at the forefront of the fight against financial crime, calling for a change in the current AML/CFT framework and proposing concrete amendments for improvement. This AML/CFT Blueprint is aimed at identifying the main challenges faced by banks and suggesting solutions for enhancing the European AML/CFT rulebook.