Leaked documents from the U.S. Financial Crimes Enforcement Network showing $2 trillion in suspicious transactions reported by global banks, including some of the largest institutions in Europe, are "a wake-up call" for EU authorities who need to take urgent action, EU parliamentarian Sven Giegold told a press conference.
He was speaking after BuzzFeed News obtained more than 2,100 suspicious transaction reports filed with FinCEN, which is part of the U.S. Treasury, and other U.S. government documents covering the period 1999 to 2017.
The FinCEN files show that banks including HSBC Holdings PLC, Standard Chartered PLC, Deutsche Bank AG, JPMorgan Chase & Co. and Bank of New York Mellon Corp. have continued to facilitate suspicious transactions, BuzzFeed said Sept. 20, despite receiving fines and facing prosecution for financial misconduct.
An analysis conducted by the International Consortium of Investigative Journalists in collaboration with BuzzFeed indicates that $1.3 trillion, or more than half of the amount of suspicious transactions, were moved through Deutsche Bank.
The leak triggered a selloff of banking stocks Sept. 21 with the STOXX Europe 600 Banks index dropping to a value of about 81 on the day, down from the opening value of about 88 on Friday, Sept. 18. The index was trading down 8.64% at 81.59 at 10.15 a.m. CET on Sept. 22.
System still broken
The FinCEN leak sheds more light into a problem that was already known, Giegold, who is a representative of the Green Party in the EU Parliament, told journalists. "What is new now is that we know with dates and amounts how long some of these business relationships were kept, even after the public authority was involved," he said.
This calls for EU authorities to take urgent action to unify anti-money laundering supervision and enforcement because the system in its current form is broken, Giegold said. Europe needs to establish a European anti-money laundering supervisory authority, including an EU financial intelligence unit, or FIU, he said. "As crime is globalizing, AML institutions cannot stay national," he said.
There seems to be "strong agreement" among EU member states on the establishment of a common supervisory authority in the bloc "for at least the large cross-border financial institutions," Giegold said. However, the FinCEN leak "is a loud reminder that this will not be enough," he said. "We also need a European FIU, which can investigate and analyze the transaction reports [with] strong cross-border [links]," he said.
Based on Brussels chatter, there is more resistance from EU member states to establishing an EU-wide FIU than to a common AML supervisor, according to Giegold. Given that the process is still in its early stages and the European Commission has not submitted an official proposal, it is not clear yet which EU countries are opposing the AML supervision and enforcement on an EU level, he said. However, "we know from background discussions that the willingness to move to a common FIU as well as a well-resourced European financial police is very much limited," he said.
European Commission Executive Vice-President Valdis Dombrovskis, who currently oversees financial services, told the Financial Times in May, that the EC will start consultations with EU member states about establishing an EU AML supervisor and in early 2021 it plans to propose new measures to strengthen the information sharing between national FIUs.
Germany lacks supervision
Suspicious transaction reports that are filed under the EU Anti-Money Laundering Directive are lodged with national FIUs, Giegold said. Some of those national authorities work well but some, such as the FIU in Germany, are incapable of effectively enforcing anti-money laundering regulations, he said.
Germany is incapable of enforcing basic rules that were set in the EU AML framework as early as 2007, Giegold said. Under German law, corporate fines for money laundering are limited to €10 million and for this type of misconduct, criminal charges cannot be filed against companies but only individuals, he told S&P Global Market Intelligence.
National legislation needs to be changed to allow fines of up to 10% of annual turnover to be imposed on financial institutions for money laundering, he said. He was also critical of some German political parties that have attempted to block reform of German corporate sanctions law, "which would move the level of prosecution to more American-style amounts," Giegold told the press conference.
The German FIU was part of the Federal Criminal Police Office, Bundeskriminalamt, when it was launched and has been part of the German Customs Investigation Bureau, Zollkriminalamt, within the German Finance Ministry since June 2017.
In response to the FinCEN leak, German Finance Minister Olaf Scholz has requested a review of the suspicious transactions mentioned in the reports, he told Augsburger Allgemeine Zeitung Sept. 21. The revelations are about old transactions dating up to 2017, and since then there have been a number of measures to improve the detection of money laundering, he told the newspaper.
The Federal Criminal Police Office of Germany, declined to comment on Giegold's statements.
The EC needs to act against member states for failures around the implementation of EU AML rules and open infringement proceedings against those countries, including against Germany, Giegold told S&P Global Market Intelligence.
German banking supervisors came under pressure earlier this year for failing to detect and act against fraud at now-collapsed payments company Wirecard AG, which filed for insolvency after discovering €1.9 billion of missing cash balances on its books.