by Nate Sibley
April 09, 2019

from WorldPoliticsReview Website


Nate Sibley is the program manager of the Hudson Institute's Kleptocracy Initiative, where he researches policies to counter crime and corruption from authoritarian regimes.

He is the co-author of two Hudson Institute reports, "Countering Russian Kleptocracy" and "The Enablers: How Western Professionals Import Corruption and Strengthen Authoritarianism."

His work has been published in The Washington Post, The Wall Street Journal, The Hill and other outlets.

Thomas Borgen (C),

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.





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.


The 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.

Beyond reputational damage, inclusion on the EU blacklist carried potentially serious implications for many countries, as it would have subjected their citizens and businesses to stricter background checks by European banks and others covered by its anti-money laundering laws.


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.

However, supporters of the EU's anti-money laundering blacklist applauded the European Commission's bold attempt to finally "name and shame" some of the jurisdictions that habitually facilitate transnational crime and corruption, the global cost of which is estimated to be $2 trillion annually.


The 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.

This dispute could hardly have come at a more dramatic moment for EU policymakers, who are already grappling with a string of unprecedented money laundering scandals.


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.

Financial institutions are not alone in facing heightened scrutiny over their transparency, as the governments of several EU member states have been sharply criticized by Brussels over their failure to tackle financial crime and corruption - notably through so-called golden visa investment schemes that grant wealthy individuals EU residency rights, often with few background checks.


European policymakers

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.

But the EU's drive to strengthen anti-money laundering laws has undoubtedly highlighted some genuine systemic challenges, as well as some uncomfortable truths.


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 emerging, 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 complex system.

There has also been a failure of political will among most EU member states to enforce their own laws effectively.


European banks are far more scared of U.S. authorities than their own regulators, and for good reason:

In the decade since the 2008 financial crisis, the U.S. fined banks around $24 billion worldwide, while European countries collectively managed just $1.7 billion.

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...

The EU can take two main lessons from the backlash over its attempt to crack down on dirty money.

  • First, it must continue with its admirable attempts to strengthen, consolidate and enforce anti-money laundering measures - no easy task given a disparate EU membership that often pursues conflicting political, commercial and security interests.


  • Second, it is imperative that Europe and the United States begin to align their anti-money laundering laws and coordinate where possible on policy and enforcement.

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.