Erhvervs-, Vækst- og Eksportudvalget 2018-19 (1. samling)
ERU Alm.del Bilag 30
Offentligt
1957614_0001.png
IN-DEPTH ANALYSIS
Money laundering - Recent cases from
a EU banking supervisory perspective
This briefing (1) provides some insight into recent cases of breaches or alleged breaches of anti-money
laundering (AML) rules by banks and (2) identifies some common prudential features. The briefing also
outlines (3) the respective roles of European and national authorities in applying AML legislation that
have been further specified in the 5th AML Directive adopted by the EP Plenary on 19 April, and (4) ways
that have been proposed to further improve the AML supervisory framework, including the 12 September
Commission’s
communication
and the changes to the European Supervisory Authority (ESA) Regulation
proposed by the
Commission.
The Commission suggests a three-pronged approach to reinforce AML
supervision: (i) further guidelines and best practices developed by EBA; (ii) stronger powers - including an
obligation to act - for the European Banking Authority (‘EBA’) as part of the ESA review being negotiated
at Council and Parliament; (iii) establishing, where appropriate, an EU body, at a later stage, as part of
the review clause of the 5th AML Directive in 2022. This briefing is an updated version of the April 2018
EGOV briefing prepared for the hearing: ‘Combat of Money Laundering in the EU Banking Sector’
organised by the European Parliament’s Special Committee on Financial Crimes, Tax Evasion and Tax
Avoidance (TAX3) on 26 April 2018.
1. Recent cases of breaches or alleged breaches of AML rules
While ABLV Bank AS (case 1) was directly supervised by the ECB as a “significant institution”, Verso
Bank in Estonia (case 2) and Pilatus Bank in Malta (case 3) are “less significant institutions” supervised
by national competent authorities (Malta Financial Services Authority and Finantsinspektsioon in
Estonia) as part of the Single Supervisory Mechanism (SSM). The branch of Danske Bank in Estonia
(case 4) is prudentially supervised by the Danish Supervisor, which is not part of the Banking Union.
Case 1: Liquidation of directly supervised ABLV in Latvia
The Latvian ABLV Bank, with a balance sheet size of EUR 3.6 billion (ABLV
facts & Figures
of Q3 2017)
way below the ECB’s size-related threshold for direct supervision of EUR 30 billion, was still directly
supervised since it was one of the three largest credit institutions in Latvia in terms of asset base (in
terms of loan portfolio, however, it only ranked on the seventh place). Though the published
financial information indicates that the bank was well capitalized and profitable, the shareholders
of ABLV decided at an extraordinary meeting on 26 February 2018 to
voluntary liquidate the bank
as a result of the following events:
Economic Governance Support Unit (EGOV)
Authors: J. Deslandes and M. Magnus
Directorate-General for Internal Policies
PE 614.496 - October 2018
EN
 ERU, Alm.del - 2018-19 (1. samling) - Bilag 30: Briefing fra Europa-Parlamentets analyseafdeling om banker involveret i hvidvaskningssager
1957614_0002.png
IPOL | Economic Governance Support Unit
•
•
•
•
•
•
On 12 February 2018, the Financial Crimes Enforcement Network (FinCEN) at the US Treasury
proposed to ban ABLV from having a correspondence account in the United States due to
money laundering concerns (see Box 1 below with excerpts taken from the proposal’s
reasoning), raising severe doubts about the soundness of the bank’s business model. FinCEN
invited comments on all aspects of the proposed rule to be made within 60 days. After the
FinCEN statement, clients started pulling out deposits from ABLV, which eventually resulted
in an acute liquidity shortage;
On 18 February 2018, the Latvian banking supervisor - the Financial and Capital Market
Commission (FCMC) - imposed a
temporary restriction on payments
,
following the ECB’s
respective instruction, in order to allow for a stabilisation of ABLV’s financial situation. On 23
February 2018, the ECB determined that ABLV Bank
‒
as well as its subsidiary in Luxembourg
‒
was
failing or likely to fail
due to the significant deterioration of its liquidity situation, and
was to be wound up under the insolvency laws of Latvia and Luxembourg;
On 24 February 2018, the Single Resolution Board (SRB) decided that it would not take
resolution action
;
On 9 March 2018, the Luxembourg Commercial Court, however, decided to
refuse the
request
to place the subsidiary in Luxembourg
‒
ABLV Bank Luxembourg, S.A.
‒
in
liquidation. That entity shall now be sold to new investors.
On 12 June 2018, the FCMC permitted ABLV Bank to
implement
voluntary liquidation plans
under the control of FCMC.
On 12 July 2018, the ECB
withdrew
the banking license of ABLV Bank, AS (in liquidation).
Box 1:
Excerpts
from the Department of the Treasury’s Proposal
of Special Measure Against
ABLV Bank, AS as a Financial Institution of Primary Money Laundering Concern
II. Summary of Notice of Proposed Rulemaking
This NPRM [notice of proposed rulemaking] sets forth (i) FinCEN’s finding that ABLV Bank, AS (ABLV),
a commercial bank located in Riga, Latvia, is a foreign financial institution of primary money
laundering concern pursuant to Section 311, and (ii) FinCEN’s proposal of a prohibition under the fifth
special measure on the opening or maintaining in the United States of a correspondent account for,
or on behalf of, ABLV. As described more fully below, FinCEN has reasonable grounds to believe that
ABLV executives, shareholders, and employees have institutionalized money laundering as a pillar of
the bank’s business practices. As described in further detail below, ABLV management permits the
bank and its employees to orchestrate and engage in money laundering schemes; solicits the high-
risk shell company activity that enables the bank and its customers to launder funds; maintains
inadequate controls over high-risk shell company accounts; and seeks to obstruct enforcement of
Latvian anti-money laundering and combating the financing of terrorism (AML/CFT) rules in order to
protect these business practices [...]
III. Background on Latvia’s Non-Resident Deposit Sector and ABLV Bank
1. Latvia’s Non-Resident Deposit Banking Sector
Due to geography, linguistic profile, and a stable and developed banking system, Latvia serves as a
financial bridge between the Commonwealth of Independent States (CIS),7 European Union (EU) and
U.S. financial systems. While it lacks a legal framework that formally separates domestic banking
business and non-resident banking, most Latvian banks conduct the majority of their business in
either domestic retail/commercial banking or non-resident banking services, not both. Non-resident
banking in Latvia allows offshore companies, including shell companies, to hold accounts and
transact through Latvian banks. CIS-based actors often transfer their capital via Latvia, frequently
through complex and interconnected legal structures, to various banking locales in order to reduce
scrutiny of transactions and lower the transactions’ risk rating. [...] The Latvian banking system’s
reliance on NRD funds for capital exposes it to increased illicit finance risk.
2
PE 614.496
 ERU, Alm.del - 2018-19 (1. samling) - Bilag 30: Briefing fra Europa-Parlamentets analyseafdeling om banker involveret i hvidvaskningssager
1957614_0003.png
Money laundering - Recent cases from a EU banking supervisory perspective
In May, ABLV
filed
lawsuits against the ECB and the SRB. In accordance with BBRD, the lodging of an
appeal shall not entail any automatic suspension of the effects of the challenged decision. Decisions
of resolution authorities are immediately enforceable.
Further to a visit in Latvia in August 2018, the EP TAX3 Committee Chair stressed that “Latvian
authorities have clearly realised that the situation which the country’s banking sector was in was not
sustainable. We were also pleased to note that efforts are being carried out to redress the situation and
these are already bearing fruit, such as the reduction of non-resident deposits and of shell companies,
and the increase in criminal proceedings against entities involved in money laundering”.
Case 2: Liquidation of Versobank in Estonia
The Estonian Versobank AS - a less significant bank within the meaning of the SSM Regulation - was
not directly supervised by the ECB, but by the national supervisor Finantsinspektsionoon. Founded
in 1999, Versobank AS had a balance sheet of 294 million EUR by end 2017. Its main shareholder is
UKRSELHOSPROM PCF LLC (offices in Dnipropetrovsk in Ukraine), with ownership of 85.26% of
shares. Its
Public Interim Report
(IV Quarter 2017) disclosed good financial performances.
•
On 8 February 2018,
Finantsinspektsioon
submitted an application to the ECB to withdraw
the authorisation of Versobank AS due to “serious
and long-lasting breaches of legal
requirements, particularly concerning the prevention of money laundering and combating the
financing of terrorism”
according to Finantsinspektsioon’s statements. These breaches were
uncovered by Finantsinspektsioon as part of on-site inspections carried out in 2015-2017.
The “breaches
were systemic and long-lasting, and the bank did not fully eliminate them even
after the intervention of Finantsinspektsioon”;
On 26 March 2018, the ECB decided to withdraw the authorisation of Versobank, as
proposed by Finantsinspektsioon;
On the same date, following the withdrawal of the authorisation, all transactions and
operations of Versobank AS and all payouts to depositors and other creditors were
immediately suspended.
•
•
Finantsinspektsioon filed an application to the court for compulsory dissolution and the
appointment of liquidators.
Case 3: Pilatus Bank in Malta
Pilatus Bank is a less significant institution prudentially supervised by the Malta Financial Services
Authority. Pilatus Bank is authorised since 2014 as a credit institution providing private and
corporate banking services to high net-worth individuals and financial institutions. In 2016 its total
assets
amounted to 309 million EUR.
On 20 March 2018, Mr Ali Sadr Hasheminejad Pilatus Bank’s former Chairman (and more recently
non-Executive Director) has been
indicted
in the United States of America “for
his alleged
involvement in a scheme to evade U.S. economic sanctions against Iran, to defraud the U.S., and to
commit money laundering and bank fraud”.
Further to this indictment, the Malta Financial Services
Authority (MFSA) took the following steps:
•
On 21 March 2018, the MFSA issued an
order
to remove Mr Ali Sadr Hasheminejad, with
immediate effect, from the position of director of the Bank and any executive roles that he
holds within the Bank and suspend the exercise of his voting rights as shareholder of the
Bank;
PE 614.496
3
 ERU, Alm.del - 2018-19 (1. samling) - Bilag 30: Briefing fra Europa-Parlamentets analyseafdeling om banker involveret i hvidvaskningssager
1957614_0004.png
IPOL | Economic Governance Support Unit
•
•
•
On 22 March, the MFSA
appointed
Mr Lawrence Connell as a ‘Competent Person’ to take
charge of all the assets of Pilatus Bank Limited and assume control of the Bank’s banking
and investment services business. The MFSA also issued a Directive directing the Bank not
to dispose, liquidate, transfer or otherwise deal with clients’ assets and monies;
In its
public statement
on 2 April in relation to Pilatus Bank, the MFSA stressed that “it
has
undertaken various supervisory steps as required, closely reviewing and monitoring the Bank, in
accordance with its supervisory responsibilities and subjecting it to numerous examinations
including on-site inspections regarding prudential issues related to the Bank and o on-site anti-
money laundering and combating the financing of terrorism (AML/CFT) examinations
conducted jointly with the FIAU [...] A comprehensive and in-depth compliance examination of
the bank’s operations has been and continues to be underway”;
The Maltese
FSA
asked the ECB to withdraw Pilatus Bank’s license in June 2018.
In its
mission report
following the joint ad-hoc Delegation to Malta (30 November - 1 December
2017), the Committee on Civil Liberties, Justice and Home Affairs (LIBE) and the Committee of
inquiry to investigate alleged contraventions and maladministration in the application of Union law
in relation to money laundering, tax avoidance and tax evasion (PANA) summarised the findings of
AML breaches in relation to Pilatus Bank as follows:
•
•
•
•
“FIAU
carried out an onsite-visit to Pilatus Bank between 15-22 March 2016, which resulted in a
compliance report in April 2016 raising many concerns including alleged breaches of the Maltese
legislation against money laundering”;
“Pilatus
Bank contested the content of the compliance report and hired KPMG to do an audit of
the Bank‘s compliance with money laundering obligations”;
A second visit was conducted on 8 and 10 August; the result was that “all
was clarified with
some concerns”;
“In
September 2016, the FIAU certified in a letter to Pilatus Bank its compliance with anti-money
laundering obligations”.
The European Banking Authority (‘EBA’) conducted two preliminary enquiry in relation to (i) the
Maltese FIAU and to (ii) the Maltese FSA:
•
The
EBA
issued in July 2018 a recommendation addressed to the Maltese Financial
Intelligence Analysis Unit (FIAU) after establishing it had breached Union law in relation to
its supervision of Pilatus Bank. In particular, the EBA asked “the
FIAU to take actions to
systematically assess the ML/TF risk associated with the Maltese financial sector; to supervise the
effectiveness of the AML/CFT policies and procedures put in place by the obliged entities; to
ensure enough resources are available and robust procedures are in place to supervise its obliged
entities”;
In relation to the Maltese FSA, while the preliminary enquiries have raised “significant
concerns concerning the MFSA’s authorisation and supervisory practices in relation to
Pilatus Bank, the
EBA
has decided in September 2018 to close the case without opening a
breach of Union law investigation. While recognising the “significant supervisory actions
taken by the Maltese FSA”, EBA emphasised that the “requirements set out in Union law for
prudential supervisors [make] it difficult to conclude that there have been breaches of clear
and unconditional obligations established in Union law”.
•
The
EBA
assessed in September 2018 that the withdrawal of Pilatus Banks’ licence “is the appropriate
step to take” [...] given the current circumstances of the bank’s ultimate beneficial owner. EBA will
be conducting a further on-site visit to the Maltese FSA in mid-2019.
4
PE 614.496
 ERU, Alm.del - 2018-19 (1. samling) - Bilag 30: Briefing fra Europa-Parlamentets analyseafdeling om banker involveret i hvidvaskningssager
1957614_0005.png
Money laundering - Recent cases from a EU banking supervisory perspective
Case 4: Danske Bank’s branch in Estonia
Danske Bank is a Danish Bank which is not supervised by the SSM as Denmark is not part of the
Banking Union. Its branch in Estonia is supervised by Estonia’s Financial Supervisory Authority
(Finantsinpektsioon) as a “host” supervisor in accordance with the Capital Requirements Directive
(CRD). Pursuant to the CRD, responsibility for prudential supervision, including internal control
systems, lies with the home supervisor
1
. For money laundering purposes, the competent authorities
of a host Member State retains full responsibility, as explained in box 2 below.
Further to
allegations from the
press
on 26 February 20018 that lax controls in Danske Bank’s
Estonian operations led to potential money laundering, the Finantsinpektsioon explained the
following:
•
On 27 February 2018, Finantsinspektsioon
stated
that it would look at whether Danske
knowingly withheld information during a series of on-site inspections it conducted at its
Estonian branch in 2014 and emphasised that “possibly
misleading the financial supervisory
institution in supervision proceedings is a serious violation, if Danske bank had additional
information on this client but did not disclose it during the on-site inspection”;
As part of the investigations
carried out
in 2014, Finantsinspektsioon found “large-scale,
long-lasting systemic violations of anti-money laundering rules in the Estonian branch of the
Danish credit institution”.
In 2015, Finantsinspektsioon required the bank to target these
violations more effectively. “As
a result, the bank stopped providing services to non-residents in
the volumes and format seen previously”;
Estonia’s Finantsinspektsioon informed the Danish Finanstilsynet about intention to carry
out on-site inspection and the results of the inspection;
On 21 March 2016, the Danish Finanstilsynet published a
report
on the results of the
inspection carried out in the Danske Bank Group regarding the implementation of money
laundering and terrorist financing prevention measures;
On 3 May 2018, the Danish Finanstilsynet took a
decision
concerning Danske Bank's
management and control in the Estonian money laundering case, comprising orders and
reprimands, and indicating the need for an increase in the bank's capital requirement by
DKK 5bn due to increased compliance and reputational risk.
•
•
•
•
Regarding the cooperation with the Danish Authorities,
Finanstilsynet
emphasised the limits of the
supervisory framework as follows: “Under
European Union law, supervision of Danish credit
institutions, including their internal control systems as whole, is the responsibility of respective Danish
authorities. The Estonian financial supervisory institution has limited responsibility concerning incoming
branches of European Union credit institutions operating in Estonia. Finantsinspektsioon exercised its
responsibilities and by its actions terminated the significant money-laundering risks stemming from the
Estonian branch of Danske Bank in 2014/2015. The Danish financial supervisory institution has been
informed of this”.
Danske Bank
commissioned a law firm to carry out an independent investigation in its Estonian
branch, summarising its findings in a
report
(Report
on the Non-Resident Portfolio at Danske Bank’s
Estonian branch). The examination included 9,5 million transactions 15,000 customers in the period
2007-2015. According to that report, the investigation analysed a total of some 6,200 customers,
selected by using risk indicators, and found that the vast majority of them was suspicious.
1
Nevertheless, the “competent authorities of the host Member State has the power to carry out, on a case-by-case basis,
on the spot checks and inspections of the activities carried out by branches of institutions on their territory [...] where
they consider it relevant for reasons of stability of the financial system in the host Member State” (CRD Article 52).
Findings of those investigations shall be sent to the home competent authorities.
PE 614.496
5
 ERU, Alm.del - 2018-19 (1. samling) - Bilag 30: Briefing fra Europa-Parlamentets analyseafdeling om banker involveret i hvidvaskningssager
1957614_0006.png
IPOL | Economic Governance Support Unit
Danske Bank
has recognised “a
series of major deficiencies in the bank´s governance and control
systems made it possible to use Danske Bank’s branch in Estonia for suspicious transactions”.
Key
findings of that report inter alia include that:
•
•
•
•
•
•
a series of major deficiencies in the bank´s governance and control systems made it possible
to use Danske Bank’s branch in Estonia for suspicious transactions,
Danske Bank’s branch had a large number of non-resident customers in Estonia that carried
out large volumes of transactions that should have never happened,
only part of the suspicious customers and transactions were historically reported to the
authorities as they should have been,
the Estonian control functions did not have a satisfactory degree of independence from the
Estonian organization,
the branch operated too independently from the rest of the Group with its own culture and
systems without adequate control and management focus from the Group,
and that as a result, the Group was slow to realise the problems and rectify the
shortcomings.
Reacting to this report, the
Danish FSA
explained that it is “continually
considering whether new
information will make us reconsider the decision made in May. [It] will now examine the bank’s
investigation carefully in this respect”.
Box 2: Responsibilities of host and home supervisor under the 4th AML Directive
Responsibilities of the competent authorities of the home Member State
“Where
an obliged entity operates establishments in another Member State [...], the competent authority
of the home Member State should be responsible for supervising the obliged entity's application of group-
wide AML/CFT policies and procedures. This could involve on-site visits in establishments based in another
Member State. The competent authority of the home Member State should cooperate closely with the
competent authority of the host Member State and should inform the latter of any issues that could affect
their assessment of the establishment's compliance with the host AML/CFT rules”.
Responsibilities of the competent authorities of the host Member State
“Where
an obliged entity operates establishments in another Member State [...], the competent authority
of the host Member State retains responsibility for enforcing the establishment's compliance with AML/CFT
rules, including, where appropriate, by carrying out onsite inspections and offsite monitoring and by taking
appropriate and proportionate measures to address serious infringements of those requirements. The
competent authority of the host Member State should cooperate closely with the competent authority of
the home Member State and should inform the latter of any issues that could affect its assessment of the
obliged entity's application of group AML/CFT policies and procedures. In order to remove serious
infringements of AML/CFT rules that require immediate remedies, the competent authority of the host
Member State should be able to apply appropriate and proportionate temporary remedial measures,
applicable under similar circumstances to obliged entities under their competence, to address such serious
failings, where appropriate, with the assistance of, or in cooperation with, the competent authority of the
home Member State”
Source: Recitals 52 and 53 of
Directive 2015/849
6
PE 614.496
 ERU, Alm.del - 2018-19 (1. samling) - Bilag 30: Briefing fra Europa-Parlamentets analyseafdeling om banker involveret i hvidvaskningssager
1957614_0007.png
Money laundering - Recent cases from a EU banking supervisory perspective
According to a
press statement
of 19 September, the Chief Executive Officer of Danske Bank, Thomas
F. Borgen, informed the Board of Directors that he wishes to resign from his position, admitting that
Danske Bank failed to live up to its responsibility in the case of possible money laundering in Estonia.
Case 5: ING - settlement with Dutch authorities regarding AML shortcomings
On 4 September, ING, the largest Dutch bank that is directly supervised by the ECB,
announced
that
it had settled an agreement with the Dutch Public Prosecution Service, agreeing to pay a fine of EUR
675 million and EUR 100 million for disgorgement. The press statement discloses that the fine relates
to the authorities’ investigations at ING Netherlands for the period from 2010 to 2016 regarding
serious shortcomings to prevent money laundering and financial economic crime.
2. Are supervisory financial indicators sufficient?
A robust assessment whether a bank might systematically be involved in some kind of money
laundering activity can only be based on detailed information at transaction level; it is exactly that
sort of information that supervisory or law enforcement authorities will seek to obtain in the course
of targeted on-site inspections. In some instances, supervisors are informed by whistle blowers or
alerts (suspicious communication transactions) issued by other market agents.
In general, the public will therefore only learn about the involvement of a bank in money laundering
activities once a supervisory statement or warning is published, following a proper analysis of
detailed information.
Supervisory key indicators
When it comes to the identification of money laundering activities, the financial key indicators that
are usually gauged at bank entity level to assess its financial soundness and compliance with
regulatory requirements are not very telling.
In fact, those two banks that have recently been officially accused of money laundering, ABLV and
Versobank, would have both indicated to be in good financial health when assessed against those
key financial indicators (see table 1):
Table 1: Supervisory key financial indicators, in comparison
Key financial indicator
CET1 ratio
Total capital ratio
NPL ratio
Leverage ratio
Loan-to-Deposit ratio
ABLV
(at 31/12/2017)
16.3%
21.1%
3.4%*
7.9%
39.4%
Versobank
(at 31/12/2017)
17.6%
26.5%
0.5% **
7.8%
19%
Average of directly
supervised banks (as
30/09/2017)
13.7%
17.2%
6.5%
5.3%
122.3%
Sources, if not explicitly indicated otherwise:
ABLV Public Quarterly Report Jan-Dec 2017, Versobank Public Interim Report
IV Quarter 2017, ECB Supervisory Banking Statistics;
leverage ratio and loan-to-deposit ratio for ABLV based on own
calculation; leverage ratio for Versobank based on transitional definition
* Amounts past due for more than 90 days and impaired loans, as percentage of the loan portfolio, according to the
ABLV
annual report 2016,
at group level
** Share of non-performing loans, with 90 days past due, of the gross loan portfolio, according to the
Public Interim Report
for the second Quarter 2017
PE 614.496
7
 ERU, Alm.del - 2018-19 (1. samling) - Bilag 30: Briefing fra Europa-Parlamentets analyseafdeling om banker involveret i hvidvaskningssager
1957614_0008.png
IPOL | Economic Governance Support Unit
Other indicators
Other indicators (based on the cases in question) could therefore be more telling, even though they
are by no means sufficient - neither isolated nor combined - to reliably spot systematic money
laundering activities
2
.
The first feature that ABLV and Versobank had in common is the very
high ownership
concentration:
•
In case of ABLV, the bank’s controlling interest was held by the bank’s Chief Executive Officer
and the bank’s Chairman of the Council (combined they held 87% of the shares with voting
rights), the rest was held by other closely related shareholders (management and
employees), but there was no free float of shares or outside shareholders;
In case of Versobank, the main share of the bank was owned by Cyprus Popular Bank until
March 2012, thereafter Ukrainian investors became the main shareholders, and more than
85% of the shares were then held by the Ukrainian agro-industrial company
UKRSELHOSPROM.
•
A second common feature of those two banks was that a very large part of their deposit base came
from by
non-resident clients.
•
•
In case of Versobank, the interim financial report shows the geographical concentration of
financial liabilities: At the end of 2017, 83% of the bank’s liabilities to customers were owed
to non-resident clients outside of Estonia;
In case of ABLV, that information is not disclosed in the bank’s quarterly report but in a
presentation to investors, according to which 69% of the bank’s total funding - including
equity - stemmed from deposits of non-residential clients (see figure 1). That figure is even
higher when compared only to the deposit base: At the end of June 2017, 84% of the total
deposits placed at ABLV came from clients whose beneficiaries are residents in the Russian
Commonwealth CIS.
Figure 1: ABLV Bank Funding split by type (at 30 Sept. 2017)
2
Indicators that banks can use at the transaction level are of course different and go into much more detail;
the Belgian authority in charge of AML (CTIF) has, for example, published an interesting guidance/list with
related indicators
at transaction level in that respect.
8
PE 614.496
 ERU, Alm.del - 2018-19 (1. samling) - Bilag 30: Briefing fra Europa-Parlamentets analyseafdeling om banker involveret i hvidvaskningssager
1957614_0009.png
Money laundering - Recent cases from a EU banking supervisory perspective
Source:
ABLV Facts & Figures of September 30, 2017,
p. 10
The Estonian banking supervisor analysed the share of deposits by non-resident companies and
household clients in the three Baltic States. In Lithuania, the share of non-resident deposits in bank
deposits only accounts for 2.8% and is hence rather negligible, whereas it plays on average a bigger
role in Estonia and in particular in Latvia. At the peak in 2014, 56% of all the deposits in Latvian banks
were deposits of non-residents, that share had fallen to 41% by 2017. The share of deposits in Estonia
held by foreign non-financial sector companies and households has been declining steadily, and it
fell from a peak of 21% in 2012 to 8.5% by 2017 (see chart 1).
Compared to the averages at national level, the share of non-resident deposits was still higher in
case of ABLV and much higher in case of Versobank.
The share of non-resident deposits has been assessed by the EBA as an indicator of potential AML
breaches. As part of its preliminary enquiry conducted at the Maltese FSA, the European Banking
Authority (‘EBA’) expressed concerns about the lack of “resources and risk prioritisation given to
credit institutions pursuing a private banking business model with predominantly non-resident
customers”.
Chart 1: The share of non-resident deposits from households and non-financial sector
corporates in the Baltic States (2010-2017)
Source:
Eesti Pank
The third common feature of ABLV and Versobank finally was the large share of
deposits made in
non-euro currencies:
•
•
in case of Versobank, more than one third of its deposits was made in US dollars (see display
of the currency position at 31/12/2017 in the interim report);
in case of ABLV, deposits made in USD apparently exceeded even 60% of the total deposit
base at the end of 2016, according to the latest full annual report available (on average, the
share of US dollar deposits in Latvian banks amounted to just over 30% at the end of 2016,
according to the
statistical information
provided by the Latvian supervisor; according to the
PE 614.496
9
 ERU, Alm.del - 2018-19 (1. samling) - Bilag 30: Briefing fra Europa-Parlamentets analyseafdeling om banker involveret i hvidvaskningssager
1957614_0010.png
IPOL | Economic Governance Support Unit
statistics
of the Estonian supervisor, the share of US dollar deposits was on average
amounting to just 11% in Estonian banks at that time).
Hence, both ABLV and Versobank had a much higher share of deposits made in non-euro currencies
than their competitors on their home markets.
3. Allocation of supervisory responsibilities
Compliance with AML rules involves (i) national competent authorities that may include the
prudential supervisor, the (ii) ECB (SSM) as a prudential supervisor along the lines described below
and iii) the European Supervisory Authorities (ESAs)
3
tasked with supervisory convergence.
National competent authorities
Responsibilities for anti-money laundering primarily fall with national competent authorities that
are designated by Member States when transposing AML Directives.
By way of example, in
Malta,
supervisory cooperation between the FIAU (Financial Intelligence
Analysis Unit) and the Malta Financial Services Authorities is organised by law along the following
lines:
•
•
(FIAU) is the national agency with responsibility for prevention of money laundering and
financing of terrorism and is also responsible for ensuring compliance by all subject persons,
The MFSA, as the financial services supervisory Authority has a vested regulatory interest to
prevent the use and involvement of authorized persons in such crimes. The MFSA is
considered to be an agent of the FIAU and is required to extend assistance and cooperation
to the FIAU in the fulfilment of its responsibilities. The MFSA also carries out on behalf of the
FIAU, on-site examinations on subject persons falling under its supervisory competence
with the aim of establishing that person’s compliance with the requirements of the PMLA or
regulations and reports to the FIAU accordingly
The FIAU may request the MFSA to provide it with information of which it may become
aware during the course of its supervisory functions, including that a subject person may
not be in compliance with the requirements of the PMLA or regulations made thereunder.
The MFSA is also required by law to disclose to the FIAU any facts or information that could
be related to money laundering or the funding of terrorism, discovered or obtained in the
course of its supervisory work or in any other manner
•
•
The November 2016 European Supervisory Authorities’
guidelines
4
on risk‐based supervision place
particular emphasis on information collected by prudential supervisors, including the Single
Supervisory Mechanism (SSM) in the Banking Union, which is nevertheless scattered across
authorities:
•
“Where
relevant information is held by other competent authorities either at home or abroad,
competent authorities should take steps to ensure that gateways make possible the exchange of
that information, and that this information can be exchanged in a timely manner. This also
3
4
The European Banking Authority (EBA), the European Securities and Markets Authority (ESMA) and the
European Insurance and Occupational Pensions Authority (EIOPA).
These guidelines set out the characteristics of a risk‐based approach to anti‐money laundering and
countering the financing of terrorism (AML/CFT) supervision and the steps competent authorities should
take when conducting supervision on a risk‐sensitive basis as required by Article 48(10) of Directive (EU)
2015/849.
10
PE 614.496
 ERU, Alm.del - 2018-19 (1. samling) - Bilag 30: Briefing fra Europa-Parlamentets analyseafdeling om banker involveret i hvidvaskningssager
1957614_0011.png
Money laundering - Recent cases from a EU banking supervisory perspective
•
applies to information held by the European Central Bank through the Single Supervisory
Mechanism”;
“This
information may originate from the overall prudential and/or conduct supervision and
take into account, where relevant, prudential information obtained in the context of the Single
Supervisory Mechanism. However, it may be appropriate to collect such information specifically
if it is not already held on the competent authorities’ records”.
For information to be more efficiently channelled from one competent authority to another, the
Commission has suggested amendments to the ESA review in September 2018. It is suggested that
EBA acts as “hub” to collect information. EBA will be required to ensure that information is analysed
and made available to competent authorities on a “need-to-know basis” (See Part 4).
At the 26 March 2018
ECON hearing,
Danièle Nouy very much welcomed the “5th Anti Money
Laundering Directive that will clarify the fact that there can be exchanges of information between
national competent authorities and the SSM”, which is “not
explicit so far”.
Danièle Nouy stressed
that the SSM depends on “the
goodwill of national authorities”.
In terms of information sharing from
the SSM to the AML competent authorities, when the “SSM
finds what could be a criminal offence”,
it
makes sure that this information is sent to national competent authorities. The 5th anti-money
laundering Directive (see box 3) requires the conclusion of an agreement on the practical modalities
for exchange of information between AML authorities and prudential supervisors. This MoU
between the ECB and all relevant AML authorities is expected to be concluded on 10 January 2019.
Nevertheless, while providing gateways for exchanging information, such new framework would
not, as explained by the Chair of SSM in a
letter
dated 3 May 2018, “guarantee
that national AML
authorities would share all relevant information with bank supervisors in a timely manner”.
In that
respect, the EP has proposed an amendment to the CRD, as part of the Banking Package being
negotiated at Parliament and Council that requires cooperation between prudential authorities and
AML authorities, including in terms of information exchange (Article 117). The September 2018
Commission’s communication on AML invites the Council to adopt this amendment (See Part 4).
The ECB (Single Supervisory Mechanism)
In a
public statement
dated 22 February 2018, Danièle Nouy, chair of the Supervisory Board of the
Single Supervisory Mechanism mentioned that: “Breaches
of anti-money laundering can be
symptomatic of more deeply rooted governance deficiencies within a bank but the ECB does not have the
investigative powers to uncover such deficiencies. This is the task of national anti-money laundering
authorities. Only when such breaches have been established by the relevant national authority can the
ECB take these facts into consideration for the purposes of its own tasks”.
In that respect, Recital 28 of
the
SSM Regulation
makes it clear that the prevention of the use of the financial system for the
purpose of money laundering and terrorist financing lies with national authorities. In that respect,
the SSM supervisory
guide
to on-site inspection of July 2018 explicitly scopes out AML supervision.
At the same time, in her
letter
dated 13 July 2017, Danièle Nouy stressed that “the
ECB has identified
conduct risk - which includes compliance with anti-money laundering laws - as one of the key risks for
the area banking system. At bank-specific level, identifying such risks feeds into the ECB’s annual
Supervisory Review and Evaluation Process (SREP), which may result in additional capital or liquidity
requirements, or supervisory measures, as appropriate”.
PE 614.496
11
 ERU, Alm.del - 2018-19 (1. samling) - Bilag 30: Briefing fra Europa-Parlamentets analyseafdeling om banker involveret i hvidvaskningssager
1957614_0012.png
IPOL | Economic Governance Support Unit
In addition to supervisory powers under SREP, this letter identified other supervisory tools:
•
•
For significant institutions in particular, assessment of the influence that qualified
shareholders may have on the prudent and sound management of the institution;
Withdrawal of the authorisation of all credit institutions in the euro area (both significant
and less significant institutions in accordance with Article 14(5) of the
SSM Regulation),
inter
alia, for anti-money laundering and anti-terrorist financing reasons, subject to the
safeguards of European Union law, including the principle of proportionality
5
;
fit and proper assessment of board members and key function holders of significant
institutions under its supervision/
•
At the 26 March 2018
ECON hearing,
Danièle Nouy further explained, during the exchange of views
with MEP that the “ECB
takes the breaches [of anti-money laundering rules] as a given”
and uses those
breaches for action under Pillar 2 or to withdraw an authorisation, but “supervisory
tools are not fit
for tracking money laundering practices”.
When it comes to the
integration of AML consideration into prudential supervision,
the Chair
of the SSM in a
letter
dated 3 May 2018 confirmed that “the
SSM Supervisory Review and Evaluation
Process (SREP) includes the components necessary for a comprehensive prudential treatment of AML risk,
within the limits of its competence and in the light of information available”
[our emphasis], as part of
the assessment of banks’ internal governance, operational risk and business models. Put it another
way, AML consideration are already integrated into prudential supervision, provided that
information is made available to the SSM by national authorities responsible for AML supervision. In
that respect, the Chair of the SSM has repeatedly explained that the supervisory framework does
Box 3: The 5th Anti Money Laundering Directive
Commission adopted a
proposal
to amend
Directive (EU) 2015/849
on the prevention of the use
of the financial system for the purposes of money laundering or terrorist financing on 5 July 2016.
Pursuant to the inter-institutional
agreement
reached on 20 December 2017, the European
Parliament adopted the 5th AML Directive on 19 April.
In terms of information exchange, the 5th AML Directive lays down the following framework:
•
National prudential competent authorities and the European Central Bank (as banking
supervisor in the Banking Union) shall conclude, with the support of the European
Supervisory Authorities, an agreement on the practical modalities for exchange of
information;
For information exchange from banking supervisor to AML authorities, professional
secrecy obligations under CRD Article 56 shall not preclude the exchange of information
with AML competent authorities;
For information exchanges from AML competent authorities to banking supervisor,
Article 57a of the 5th AML Directive makes a distinction between information exchange
between i) authorities in the same Member State and ii) across Member States including
the SSM. For the former (i.e. across Member State), that exchange of information shall be
subject to the conditions of professional secrecy, i.e. “confidential
information which [AML
competent authorities] receive in the course of their duties under this Directive may be
disclosed only in summary or aggregate form, such that individual credit and financial
institutions cannot be identified, without prejudice to cases covered by criminal law”.
•
•
5
According to the CRD Article 18(1), an authorisation may be withdrawn where a credit institution commits
one of the breaches referred to in Article 67(1), which includes the circumstance whereby « an institution
is found liable for a serious breach of the national provisions adopted pursuant to Directive 2005/60/EC on
the prevention of the use of the financial system for the purpose of money laundering and terrorist
financing.
12
PE 614.496
 ERU, Alm.del - 2018-19 (1. samling) - Bilag 30: Briefing fra Europa-Parlamentets analyseafdeling om banker involveret i hvidvaskningssager
1957614_0013.png
Money laundering - Recent cases from a EU banking supervisory perspective
not guarantee that the SSM would receive information in a timely manner. Against this background,
the Commission
communication
on AML has asked the ECB to clarify the “practical arrangements
that concern incorporation of anti-money laundering related aspects into prudential supervision”.
In terms of an
enhanced coordination and exchange of information,
the Chair of the SSM
identified in a
letter
dated 3 May 2018 the following limits to the exchange of information: i) allowing
the exchange of confidential information as provided for in the 5th AML Directive (See Part 3) does
not mean that AML authorities will share all relevant information with bank supervisor in a timely
manner; ii) the cooperation framework foreseen in the 5th AML Directive would not be swiftly set
up. In that respect, the chair of SSM called for the establishment of a new Authority as a way to
improve and strengthen the cooperation framework (see below). Against this background,
Commission suggests that EBA becomes the ‘new’ authority in charge of AML supervision. It should
work as a ‘hub’ to collect and disseminate information across authorities (See Part 4). In addition,
authorities should not only have the ability to share information but shall be required to cooperate
and exchange information
6
.
The European Supervisory Authorities (ESAs)
The ESAs Founding Regulations scope in “to
the extent that those acts apply to [financial institutions
and financial market participants] the relevant parts of Directive 2005/60/EC
7
” and involve the
authorities competent for ensuring compliance with those Directives. This means that the ESAs may
act within the powers conferred by the ESA Founding Regulations (i.e. guidelines, breach of Union
law, action in emergency situations, settlement of disagreements, college of supervisors, peer
review, coordination function, collection of information, common supervisory culture) within the
scope of AML Directives.
EBA has already used some of its powers to enforce AML standards. As explained by
EBA,
“following
communications from a number of members of the
European Parliament,
[the EBA] conducted a
preliminary enquiry into a potential breach of Union law in Portugal and made a number of
suggestions based on [its] findings”. The EBA is also conducting preliminary enquiries in Malta and
Latvia.
The
ESAs
are particularly involved in “facilitating
and fostering the co-operation of competent AML/CFT
authorities across the EU”
and developing guidelines and opinions. Article 6(5) of Directive (EU)
2015/849 requires the ESAs to issue a joint opinion on the risks of money laundering and terrorist
financing affecting the Union’s financial sector. In its February 2017 joint opinion, the ESAs have
emphasised that “more
has to be done to ensure that the Union’s AML/CFT defences are effective. This is
particularly important as Member States move towards a more risk-based AML/CFT regime that
presupposes a level of ML/TF risk awareness and management expertise that this Opinion suggests does
not yet exist in all firms and all sectors”.
In its September 2018
communication,
the Commission invites
the ESA to highlight in its next opinion the “financial sector strategic aspects of AML and the related
findings, including possible ways to address identified shortcomings, if any”.
EBA
pointed out at the EP TAX3
hearing
that its powers to enforce standards and guidelines are
limited: “we
do not supervise individual financial
institutions
and we do not currently have the legal
tools to enforce compliance in a way that would compel a competent authority to change its approach”.
EBA may investigate a breach of Union law, and issue recommendations, but “they cannot make up
6
7
ECON Committee report proposal on the Banking Package (CRD Article 117) that is being negotiated at
Parliament and Council.
The ESA review adopted by Commission in September 2017 updates this reference and replaces Directive
2005/60/EC repealed by Directive (EU) 2015/849 on the prevention of the use of the financial system for
the purposes of money laundering or terrorist financing.
13
PE 614.496
 ERU, Alm.del - 2018-19 (1. samling) - Bilag 30: Briefing fra Europa-Parlamentets analyseafdeling om banker involveret i hvidvaskningssager
1957614_0014.png
IPOL | Economic Governance Support Unit
[...] for weak or ineffective supervisory practices”. As explained at the EP TAX3 hearing, EBA would in
any case lack resources to perform all the tasks referred to in the EBA Founding Regulation (See Part
3 above). EBA staff involved in AML has been recently reinforced from 1 to 2 persons. The EBA asked
for “sufficient powers and resources to enable the EBA to take action where necessary to support
the correct and consistent application of EU AML standards and guidelines”.
4. Enhancing the existing AML supervisory framework
At the March 2018 ECON hearing with the Chair of the SSM and the subsequent April 2018 TAX3
hearing
8
, the European Parliament has launched a debate as to whether and how the supervisory
architecture should be better designed to ensure an effective application of the AML framework.
The
Commission
9
set up a Joint Working Group in May 2018 involving the Commission services, the
SSM and the three European Supervisory Authorities (EBA, ESMA and EIOPA) to “identify
specific
actions to be taken by the respective authorities, in order to improve the practical coordination of AML
supervision of financial institutions, in the short term and beyond”
10
. On 31 August 2018, the Joint
Working Group presented a
reflection paper
to Member States and the European Parliament with a
list of potential actions, seeking views on possible next steps. Based on the Joint Working Group’s
report, the Commission has proposed in its
communication
an array of different actions that are
summarised below. At the same time, the
Eurogroup
agreed to identify further measures to enhance
the monitoring of the implementation of AML measures possibly as part of an action plan, by end
2018.
The Commission has proposed a three-pronged approach to reinforce the AML supervisory
framework:
•
•
•
Commitment to further develop guidelines and best practices in terms of AML supervision,
which do not need any legislative changes;
Strengthening the AML supervisory framework by entrusting the European Banking
Authority (‘EBA’) with new powers and importantly by requiring the EBA to act in certain
domains;
Conducting a more fundamental review of the AML supervisory framework (i.e. possible
need for a new EU body) at a later stage, in accordance with the review clause of the 5th
AML Directive (i.e. January 2022) - See Part 5
In addition to this action plan, the
EBA
has identified a number of areas where additional changes
to the Capital Requirements Directive (‘CRD’) would be instrumental in addressing deficiencies in
Union law.
8
9
10
Public hearing ‘Combat of Money Laundering in the EU Banking Sector’ organised by the European
Parliament’s Special Committee on Financial Crimes, Tax Evasion and Tax Avoidance (TAX3) on 26 April
2018.
Letter from F. Timmermans, First Vice-President of the European Commission, V.Dombrovskis, Vice-
President of the European Commission and V.Jourova, Commissioner, to Danièle Nouy, chair of the SSM,
A. Enria, chair of EBA, G. Bernardino, chair of EIOPA and S. Maijoor, chair of ESMA.
The Joint Working Group was asked to look in particular at the following: (i) Better use of the European
Supervisory Authorities powers to ensure the correct application of EU law and supervisory convergence
by national AML authorities; (ii) Better integration of AML considerations into prudential supervision; (iii)
Greater use of supervisory colleges to consider AML issues; (iv) More clarity on when and how the power
to revoke a banking licence (or other financial institution's license) can be used in the case of money
laundering concerns; (v) Improving coordination and exchange of information; (vi) Consideration of any
further steps necessary for a stronger common Union approach to AML supervision and compliance.
14
PE 614.496
 ERU, Alm.del - 2018-19 (1. samling) - Bilag 30: Briefing fra Europa-Parlamentets analyseafdeling om banker involveret i hvidvaskningssager
1957614_0015.png
Money laundering - Recent cases from a EU banking supervisory perspective
Action plan to enhance the AML supervisory framework
The proposed actions fall into three broad categories, namely (i) better incorporation of AML into
supervisory actions and (ii) better cooperation of AML authorities and prudential supervisors, which
are supported by (iii) institutional changes. Most of the actions outlined in Commission’s action plan
and Joint Working Group report do not require legislative changes and could have already been
conducted under the existing supervisory framework.
Commission’s action plan very much focuses on the prudential supervisory approach to AML in
terms of both anchoring AML in prudential supervision and enhancing cooperation between AML
supervisor and prudential supervisor (See Table 1 below for the list of actions). The EBA is requested
to develop new guidelines and analysis in terms of effective cooperation, identification of risks, and
prudential supervision of AML risks, including the withdrawal of authorisation.
With respect to the withdrawal of licence for a “serious breach” of AML rules, the Joint working
Group suggests clarifying the criteria guiding the discretion of prudential supervisors. In that
respect, the
SSM
pointed out in a letter dated 3 May 2018 that there is “always
a need for supervisory
discretion on a case-by-case basis”.
While focussing on the prudential supervisory approach to AML, the action plan only contains a few
recommendations with respect to AML supervision. EBA has been asked to enhance its Risk-Based
Supervision Guidelines that would be extended to common procedures and methodologies. In
terms of going forward, the Joint Working Group report notes that ‘to ensure consistent and clear
interactions between the prudential and AML/CTF framework, EU legislation could be adjusted in
the long term”, but does not further specify which specific adjustment may be needed.
Additional regulatory changes proposed by EBA
In its September 2018 letter to the EP in relation to Pilatus Bank, the
EBA
identified additional areas
in the CRD where legislative changes would be needed to address the deficiencies of the EU
framework:
•
•
In relation to banks’ authorisation process, the EBA suggests that the CRD requires AML
supervisors to “contribute their expertise to authorisation assessments”;
When it comes to the assessment of qualifying holdings (‘fit and proper’), the EBA points to
significant difficulties arising from the obligation under some national law to take into
account definitive judicial and administrative findings. This would call for directly
applicable law requirement in that area (See also below Part 5, section on “maximum
harmonisation”). In addition, the EBA calls for clearer assessment criteria in CRD Article
23(1)(e) when assessing whether an acquisition of a qualifying holding could increase the
risk of AML;
In terms of prudential supervision of AML, EBA emphasises that the CRD does not
specifically set out the risk of financial crime as a risk to be assessed by institutions and their
prudential supervisors. In that respect, the EBA suggests including an Article on ML/TF in
the CRD
11
to ensure clarity over the role of prudential supervisor.
•
11
In Section II (“Arrangements, processes and mechanisms of institutions”) of Chapter 2 of Title VII of CRD.
PE 614.496
15
 ERU, Alm.del - 2018-19 (1. samling) - Bilag 30: Briefing fra Europa-Parlamentets analyseafdeling om banker involveret i hvidvaskningssager
1957614_0016.png
IPOL | Economic Governance Support Unit
Table1: Key measures of Commission’s action plan and Joint Working Group Report
Existing
framework
Item
Suggested measure
Timeline
Institutional changes
Cooperation
European
Supervisory
Authority
Proposed legislative obligation for prudential
supervisor and AML competent authorities to
cooperate and provide each other with
information (amendment to CRD Article 117
proposed by EP as part of the Banking
Package)
Proposed legislative change to endow EBA
all existing
with a clear responsibility for AML
convergence
Changes to the ESA Regulation proposed by
instruments
Commission to strengthen convergence
implicitly apply to
instruments in relation to AML and add new
AML
powers (See Table 2)
No obligation to
cooperate
between
prudential and
AML authorities
Possible under
existing
framework
Commitment to undertake a stock-taking
exercise identifying various AML issues
relevant from a prudential perspective
Adoption by the co-
legislator of the Banking
Package (CRD2/CRR5)
being negotiated at the
Council and Parliament
Adoption by the co-
legislator of the ESA
review being negotiated
at the Council and
Parliament
H1 2019 according to the
Joint Working Group
report
Stock taking
exercise
Incorporation of AML into prudential supervision
Common guidance Possible under
on prudential
existing
activities
framework
Commitment to adopt common guidance on End 2019 according to
how AML should be factored in in the
the Joint Working Group
prudential supervisory process
report
Possible under
Effective
cooperation across existing
framework
authorities
Clarification of
Possible under
aspects related to
existing
withdrawal of
framework
authorisation
Possible under
existing
framework
Commitment to enhance the cooperation
framework throughout the various phases of
the supervisory processes
End 2019 according to
the Joint Working Group
report
Commitment to clarify the process governing
Mid 2019 according to
the withdrawal of licences (‘serious breach’,
the Joint Working Group
consequence of the licence withdrawal,
report
criteria...)
Clarification of tasks between the ECB and
national competent authorities
Clarification of aspects related to the
withdraw of authorisation
Commitment to enhance and rigorously
implement the Risk-Based Supervision Joint
Guidelines, including common procedures
and methodologies
Mid 2019 according to
the Joint Working Group
report
Division of tasks
within the SSM
Cooperation
Guidance on
improving AML
supervision
Possible under
existing
framework
End 2019 according to
the Joint Working Group
report
MoU
Already required
under the 5th
MoU between the ECB and AML supervisors
AMLD
10 January 2019
Source: EGOV
16
PE 614.496
 ERU, Alm.del - 2018-19 (1. samling) - Bilag 30: Briefing fra Europa-Parlamentets analyseafdeling om banker involveret i hvidvaskningssager
1957614_0017.png
Money laundering - Recent cases from a EU banking supervisory perspective
Enhancing EBA’s power
For EBA’s powers to be more effective in addressing AML, the Commission proposes (i) new powers,
(ii) strengthening existing powers; (iii) an obligation for EBA to act in certain domains. Changes to
the EBA Regulation are outlined in Table 2 overleaf. In terms of AML supervision, EBA would take
over from the 3 ESA (EIOPA, EBA and ESMA) Joint Committee’s subcommittee. Commission
suggests, as part of the ESA Review, the establishment of a new EBA ‘Standing Committee’ on AML.
New powers
In terms of new powers, EBA is tasked with requesting national authorities to investigate alleged
breaches
of AML (Article 9b of the EBA Regulation). In that respect, EBA does not substitute national
authorities, but it may request a competent authority to consider adopting an individual decision.
The national authority shall inform EBA within 10 days of the steps it has taken or intends to take to
comply with that request
12
. Nevertheless, in case of breaches of Union law, EBA has the power to
adopt an individual decision addressed to the financial institution. This power - Breach of Union law
- already existed under Article 17 of the EBA Regulation, but was constrained by the very legal nature
of AML Directive. The power of EBA to address individual decisions to firms only applied with respect
to “directly applicable Union law” (which is not the case of Directives). Amendments to the ESA
review extend the EBA power under Article 17 to all Union act legislation, including national
legislation transposing EU directives
13
.
In addition, Commission’s communication suggests that all relevant authorities should have the
possibility to refer a disagreement on cooperation and exchange of information to the EBA.
Nevertheless, it does not seem that this proposal be substantiated in Commission’s legislative
proposal. EBA has the power to settle disagreement (binding mediation) between authorities only
in cases referred to in sectorial legislation. The Commission has not proposed amendment to CRD
or AML Directive as part of the review of the ESA Regulation that would allow for binding mediation.
For that power to be effective, an amendment to the CRD, where appropriate, would be needed.
Strengthening existing powers
In addition, Commission proposes to strengthen existing powers by making “explicit” certain tasks
that EBA already has (e.g. convergence powers, independent review) and reinforcing convergence
mechanisms together with an increased coordination role of EBA vis-à-vis national competent
authorities. In that respect, EBA would become a data-hub” on AML supervision. It would not only
be able to collect information (as this is possible under the existing ESA Regulation), but national
authorities shall on an ongoing basis provide EBA with all information relating to “weaknesses
identified in the process and procedures, governance arrangements, fit and proper, business models
and activities of financial sector operators”. This power would be particularly effective in cross-
border situation (e.g. Danske Bank case outlined in Part 1) as EBA would be expected to receive
information from national authorities across different Member States and coordinate, where
appropriate, supervisory actions.
12
13
This mechanism is akin to the coordination function EBA has under Article 31a of the EBA Regulation (as
proposed by Commission in its ESA
review
proposal) to monitor outsourcing and delegation
arrangements.
Application by an EU Authority of “national law” (and not only directly applicable law) has a precedent in
EU banking legislation. The SSM Regulation entrusts the ECB with the power of applying national law (See
Article 4(3) of the SSM Regulation).
17
PE 614.496
 ERU, Alm.del - 2018-19 (1. samling) - Bilag 30: Briefing fra Europa-Parlamentets analyseafdeling om banker involveret i hvidvaskningssager
1957614_0018.png
IPOL | Economic Governance Support Unit
Table 2: What do the amendment to the ESA review bring to the existing Regulation?
Item
Existing ESA Regulation and AML Directive
Suggested changes
Direct supervisory powers over institutions
Breach of Union law (for directly applicable law) in case of
(Article 17 of EBA
breach of Union law. Nevertheless, AML
Regulation)
Directives are not directly applicable (as
opposed to Regulations)
Settlement of
disagreement
(Article 19 of EBA
Regulation)
(Article 19 of EBA
Regulation)
Direct supervisory powers over institutions
to enforce all relevant Union law (including
national law transposing Directives).
This amendment will reinforce EBA’s
Breach of Union law tool.
New powers
Direct supervisory powers over institutions Direct supervisory powers over institutions
(for directly applicable law) to settle
to enforce all relevant Union law (including
disagreement, where necessary
national law transposing Directives)
Settlement of disagreement only possible
when AML Directive allows for it, which is
not the case under the CRD and the 4th
and 5th AML Directive
No changes in sectoral legislation although
Commission’s communication calls for
disagreement in terms of information
exchange to be settled by EBA.
National authorities shall investigate
alleged AML case at EBA’s request (Article
9b). EBA may request national authority to
consider adopting a decision
Request for
investigation
This power does not exist
AML task for the
ESAs
Not specified, but implicit as AML falls
within the scope of the ESA Regulation
(Article 1(2))
Make AML a special task for EBA (new
Article 9(a)
Strengthening of EBA role
Convergence
Not specified, but all convergence
instruments implicitly apply to AML
Make convergence instruments in relation
to AML explicit (Article 9(a)
Explicit - periodic independent review with
expert input from the proposed AML
Standing Committee at EBA. Where
national competent authorities do not take
actions further to a review related to AML,
EBA needs to inform the EP, Commission
and Council
Obligation to transmit information on
identified weaknesses (Article 9a)
Obligation for EBA to maintain a central
base (Article 9a)
Obligation for EBA to make sure that the
information is analysed and made available
(Article 9a)
Obligation to perform risk assessment of
AML authorities and inform Commission
thereof.
(Peers) review
Possible, but not explicit
Collection of
information
Possible under Article 35 at the Authority’s
request
Obligations for EBA to act
Analysis of
information
No obligation to analyse collected
information
Assessment of
authorities’
performance
Only possible under the “peer review”
mechanism
Source: EGOV
18
PE 614.496
 ERU, Alm.del - 2018-19 (1. samling) - Bilag 30: Briefing fra Europa-Parlamentets analyseafdeling om banker involveret i hvidvaskningssager
1957614_0019.png
Money laundering - Recent cases from a EU banking supervisory perspective
Efficiency of “independent reviews” conducted by EBA is also significantly enhanced. Commission
proposes that where national competent authorities do not take actions further to a review related
to AML, Commission proposes that EBA informs thereof the EP, Commission and Council.
Obligation to act
The existing ESA Regulation entrusts the Authorities with powers, but does not provide for an
obligation to perform any specific supervisory actions. Commission’s proposal on AML supervision
goes a step further and mandates the EBA to act in certain domains:
•
•
EBA’s role in managing AML-related information is not ‘passive’ but ‘pro-active’: EBA shall
make sure that information collected is analysed and made available on a “need-to-know”
basis (Article 9a(2));
EBA is not only able to carry out independent review of AML authorities (see above), but
also has the obligation to “regularly perform risk assessment” of authorities (Article 9a(4))
Staffing
In terms of staffing, the financial statements accompanying Commission’s proposal plan 4 FTE in
2019 and to 7,8 FTE from 2010 onwards. This would bring EBA staff in charge of AML from 2 to 10
people. Reacting to the Commission’s proposal, EBA officials
stressed
that the power to encourage
national watchdogs to implement stricter supervisory practices will have the biggest impact.
5. Towards a more fundamental shift in terms of AML
supervisory arrangements?
While Commission’s action plan to strengthen AML supervision is supposed to be completed and
implemented in 2019 (See Table 1), longer term actions, including a possible new EU authority and
a single rule book (i.e. Regulation for AML), would be presented as part of a report due by January
2022 in accordance with the 5th AML Directive.
A new European body?
The SSM has called for the
establishment of a European Authority
that will be distinct from the
ECB/SSM (see box 5 below). The Chair of the SSM further explained in a
letter
dated 3 May 2018 the
limits of what the existing supervisory and coordination framework may achieve: “as
anti-money
laundering concerns both the supervisory and criminal/judicial spheres, reviewing the [AML] Directive
may not suffice to ensure cooperation is smooth and all-encompassing. Establishing a European AML
authority could bring about such a degree of improved cooperation”.
That question has been put off until Commission’s report on AML due by January 2022 in
accordance with the 5th AMLD. As part of this report, the Commission’s communication makes it
clear that: “Different
alternatives could [...] be envisaged in order to ensure high quality and consistent
AML supervision, seamless information exchange and optimal cooperation between all relevant
authorities in the Union. This may require conferring specific AML supervisory tasks to a Union body”.
Further to the publication of Commission’s communication and legislative proposal on EBA, the
President of the ECB, at the EP ECON Committee September
monetary dialogue
reiterated the need
for the EU to establish an EU Authority for AML supervision.
PE 614.496
19
 ERU, Alm.del - 2018-19 (1. samling) - Bilag 30: Briefing fra Europa-Parlamentets analyseafdeling om banker involveret i hvidvaskningssager
1957614_0020.png
IPOL | Economic Governance Support Unit
Box 5: ECB’s public statements in relation to a possible new EU supervisory architecture
In an
interview
in March 2017, Danièle Nouy emphasized that whether money laundering and financing of
terrorism should be supervised centrally, is a “decision for politicians and legislators to make”, but the
Single Supervisory Mechanism cannot take on such
responsibility for the following reason: “we already
have many tasks which require our full attention. Moreover, we already work closely with the 19 national
competent authorities that undertake banking supervision for the countries of the euro area. [...] As anti-
money laundering is not necessarily located in the NCAs or NCBs, it would mean having additional
“partners” within the SSM, which would add complexity”.
In addition, at the April 2018 TAX3
hearing
on AML, the ECB explained that there may be legal impediments
to entrusting ECB with further responsibilities in the field of AML given the legal basis (Article 127(6)) on
which the SSM has been established. AML regulation applies to all financial sector while Article 127(6)
explicitly rules out ECB supervisory tasks for insurance.
At the 26 March ECON Committee
hearing,
reacting at the ABLV case, Danièle Nouy called for an EU agency
to be set up to police anti-money laundering rules: “we need an European institution that is implementing
in a thorough, deep, consistent fashion this legislation in the Euro area [...] We need to change the situation.
It’s not sustainable to stay in that situation”. Of particular concern were “countries that are not equipped
with enough staff and enough expertise”.
International cooperation
National authorities involved in recent alleged breaches of AML requirements that attended the
April 2018 TAX3
hearing
- the Financial and Capital Market Commission in Latvia and the Malta
Financial Services Authority (MFSA) also positioned themselves in favour of an EU Authority. In
particular, the MFSA explained that networks to exchange information would be greatly beneficial,
but would be difficult to implement in practice. As an alternative to cooperation arrangements, the
MFSA suggested the “establishment
of a centralised EU-wide due diligence/intelligence team which
could be a point of liaison with the US and other key authorities around the world and with which
national competent authorities could liaise with as part of their due diligence checks at authorisation as
well as on an on-going basis”.
At this stage, Commission’s communication only suggests that EBA takes a ‘leading role’ in
supervisory cooperation with third countries under ESA Regulation Article 33, but does not propose
further institutional changes. In the same vein, the Joint Working Group report proposed a
framework MoU to be developed by EBA. The need for a more centralised AML supervision in
relation to 3d countries would be examined by Commission in a report on FIUs’ cooperation under
Article 65(2) of AMLD due by June 2019
14
.
A maximum harmonisation framework?
The AML Directive is a minimum harmonisation directive which may lead to national differences
when Member States transpose the EU framework into national law. At the April 2018 EP TAX3
hearing, the
EBA
has stressed that minimum harmonisation limits “how
much convergence our
guidelines and standards can achieve: competent authorities and financial institutions will not be able
to comply with our guidelines if national law stands in the way”.
The same holds true for rules on
authorisation and fit and proper that are governed by the Capital Requirements Directive (CRD) and
14
“By 1 June 2019, the Commission shall assess the framework for FIUs’ cooperation with third countries and
obstacles and opportunities to enhance cooperation between FIUs in the Union including the possibility
of establishing a coordination and support mechanism”
20
PE 614.496
 ERU, Alm.del - 2018-19 (1. samling) - Bilag 30: Briefing fra Europa-Parlamentets analyseafdeling om banker involveret i hvidvaskningssager
1957614_0021.png
Money laundering - Recent cases from a EU banking supervisory perspective
not by the directly applicable Capital Requirements Regulation (CRR). Despite
EBA guidelines
[and
ECB guidelines]
on fit and proper assessments, some national law transposing the CRD prevents,
according to EBA, competent authorities from addressing money laundering concerns, unless they
can find evidence of criminal convictions. This issue has been flagged in the Joint Working Group
report as a key impediment to efficient coordination and monitoring of AML supervision.
Commission
plans to further address that question in the context of its report on the
implementation of the ALMD due by January 2022.
Disclaimer and Copyright
The content of this document is the sole responsibility of the author and any opinions expressed therein do not necessarily represent
the official position of the European Parliament. It is addressed to the Members and staff of the EP for their parliamentary work.
Reproduction and translation for non-commercial purposes are authorised, provided the source is acknowledged and the European
Parliament is given prior notice and sent a copy. © European Union, 2018.
Contact:
[email protected]
This document is available on the Internet at:
www.europarl.europa.eu/supporting-analyses
PE 614.496
21