ESAs highlight money laundering and terrorist financing risks in the EU financial sector

The three European Supervisory Authorities (EBA, EIOPA and ESMA - ESAs) published on 4th of October their second joint Opinion on the risks of money laundering (ML) and terrorist financing (TF) affecting the European Union's (EU) financial sector. Drawing on data and information provided by national anti-money laundering (AML) and countering the financing of terrorism (CFT) competent authorities (CAs), the ESAs found that the monitoring of transactions and suspicious transactions reporting still raise concerns, particularly in sectors where a financial institution's business model is based on frequent transactions. This Opinion contributes to strengthening the EU's AML and CFT efforts.

The ESAs are concerned about weaknesses in the control frameworks put in place by financial institutions, particularly for transaction monitoring and suspicious transactions reporting, in sectors with high volumes of transactions.  Equally, it appears that the development of adequate business-wide and customer risk assessments is still a challenge for financial institutions across different sectors and is an areas that would benefit from more guidance from CAs.

Furthermore, in addition to divergences in the national transposition of the Fourth Anti-Money Laundering Directive (AMLD4), as identified in the first Joint Opinion published in 2017, today's Opinion identifies divergences between certain provisions in the AMLD4 and other EU legal acts, particularly those related to authorisations, fitness and propriety and assessments of qualifying holdings. Some of these concerns have already been addressed through recent revisions in legal frameworks like the Capital Requirements Directive (CRDV).

The ESAs acknowledge that the use of new technologies may offer opportunities to better fight financial crime, however, this Opinion also confirms that the increasing use of new technologies by credit and financial institutions may give rise to ML/TF risks if vulnerabilities are not understood and mitigated. Equally, the rapid spread of virtual currencies is also an area of growing concern for the ESAs, as they often give rise to heightened ML/TF risks due to the absence of a common regulatory regime and the anonymity associated with them.

To tackle these risks and concerns effectively, the ESAs consider that CAs  must play a more active role and enhance their engagement with the private sector to develop a better understanding of new technologies, products and services available to credit and financial institutions. CAs should also consider whether they have a sufficient understanding of risks and controls in those sectors where they have carried out only limited assessments and may need to review their supervisory approach.

EU to remove several countries from Blacklist of Tax Havens

In late 2017, Brussels issued a blacklist of non-cooperative jurisdictions which are not doing enough to tackle tax evasion or to fight money laundering, and a grey list of countries that are not transparent enough to comply with the EU's regulations.

According to an official document, the European Union will remove the United Arab Emirates, and the Marshall Islands from its blacklist of tax havens. The changes will come into force on 10 October.

At the same time, Switzerland will leave the grey list, as the country delivered its commitments to Brussels complying with its standards.

The blacklist, established in 2017, originally included five non-cooperative tax jurisdictions but was later enhanced to list 15 countries: Samoa, Trinidad and Tobago, American Samoa, Guam, the US Virgin Islands, Aruba, Barbados, Belize, Bermuda, Dominica, Fiji, Marshall Islands, Oman, United Arab Emirates, and Vanuatu.

Less Suspicious Activity Reports filed in 2019

There has been a 13% drop in the number of reports submitted by accountants to the Solicitors Regulation Authority (SRA) about failings in how lawyers handle client money over the past year.

There has been a marked improvement in the last five years, due to the introduction of much tougher anti-money laundering rules, according to a new report. In 2014, by comparison, there were 4,731 suspicious activity reports (SARs). Law firms have also tightened their internal controls amid concerns about possible unintentional support for money laundering. There were 1,194 qualified reports in 2018, down from 1,380 the previous year, according to SRA accountants’ reports.

The SRA is targeting law firms providing banking facilities to clients, which is prohibited under the rules governing the legal profession. It has a particular focus on instances where law firms hold or move money on behalf of their client, where this does not relate to the underlying legal transaction they have been appointed to undertake.

This raises a risk that where law firms provide banking facilities, they may inadvertently be opening a ‘back door’ and assisting money laundering, tax evasion or hiding a client’s assets from their creditors. Money launderers are thought to target law firms as they think they are not as strict as banks in their anti-money laundering checks.

There are also problems as law firms sometimes mishandle client money by retaining client money after legal matters have completed, and residual client balances are not returned.

The National Crime Agency has identified law firms as being particularly vulnerable to being exploited by money launderers, so this is likely to be an area of intensive focus by the SRA over the next few years.

The SRA has also issued revised guidelines on the definition of serious breaches of the SRA accounts rules. This follows the regulator’s decision to relax reporting requirements for accountants in 2014, which has contributed to the substantial fall in reports over the last five years.

In May, an SRA review focused on 59 law firms providing trust and company service and although it did not find evidence of actual money laundering or any intentions of becoming involved in criminal activities, it did identify a number of breaches of the 2017 Money Laundering Regulations. As a result, 26 firms were put into the SRA disciplinary process.

The SRA has now begun a further review of 400 law firms to check compliance with the new regulations. This review will be led by a dedicated anti-money laundering unit, which has been set up to strengthen resources to prevent and detect money laundering.

Brexit Throws a Wrench Into EU’s Fight Against Money Laundering

The notorious Brexit will have negative implications on the EU’s common regulatory framework against the money laundering and terrorist financing, according to EU authorities.

In a joint report published on 4th of October 2019, the EU three financial regulators claims that the relocating of the firms from Britain could overwhelm the national bodies that supervise anti-money laundering systems. A no-deal Brexit would make things even more difficult by disrupting the exchange of information between supervisors, they said.

There’s a risk that authorities “may not be adequately equipped and staffed to effectively oversee significant numbers of new firms,” and that the robustness of supervision “might suffer as a result,” the regulators -- including the European Securities and Markets Authority and the European Banking Authority -- said in the report.

European banks have been hit by a series of scandals caused by insufficient controls against money laundering, with Danske Bank A/S’s Estonian unit being the most prominent case. Dutch lender ABN Amro Bank NV last month became the latest target of authorities, disclosing a criminal probe over alleged failures to check on clients and report suspicious transactions.

EU officials have tried to figure out what exactly went wrong with the financial system in recent years and have vowed to beef up controls. The bloc’s regulatory framework is fragmented along national lines, while financial markets are international in nature and money moves quickly across borders.

These national differences pose a challenge for firms moving to the rest of the EU from the U.K., as they must get used to specific rules in their new home countries, according to the EU regulators.

More broadly, the regulators said they are concerned about “weaknesses in the control frameworks put in place by financial institutions,” particularly in sectors with high volumes of transactions. They also said new technologies pose a risk to financial institutions, “if vulnerabilities are not understood and mitigated.”

Increased risks of money laundering and terrorist financing require swift action

In its annual report for 2018 published recently, the Council of Europe body for the fight against money laundering and terrorist financing, MONEYVAL, calls on states to ensure that they have adopted appropriate measures to combat money laundering.


The effects of economic crime, organized crime and terrorism have continued in 2018 in Europe and other parts of the world. In the report, MONEYVAL President Elzbieta Frankow-Jaskiewicz stresses that, given the heightened risks, countries and territories in Europe and beyond need to take strong measures against money laundering and financing. terrorism.


The President cited a number of initiatives implemented by MONEYVAL in 2018 in response to several pressing issues. In particular, the knowledge and effectiveness of prosecutors and judges in the fight against money laundering, predicate offenses and the financing of terrorism should be strengthened, as should efforts to combat the associated financial flows. slavery, human trafficking and forced labor.


MONEYVAL also has the priority of tackling the damaging consequences of the so-called "de-risking" phenomenon, that is to say the practice of banks around the world, in recent years, to stop all commercial relations with foreign banks in order to avoid (rather than manage) the risks of money laundering or terrorist financing, with consequent worsening of these risks in some countries.


In 2018 MONEYVAL continued its role as an international player in the global network of anti-money laundering and counter-terrorist financing bodies led by the Financial Action Task Force (FATF). The Committee actively followed up 24 countries and territories by adopting mutual evaluation reports or monitoring reports.