At the end of July, the EU published four reports on the bloc’s anti-money-laundering (AML) and counter-terrorist-financing (CTF) activities, those programmes’ success to date, and the outstanding challenges that Europe still faces in battling the spread of illicit funds.
The documents were part of a Communication to the European Parliament and Council on how better to implement the EU’s AML and CTF directives. One report was a supranational risk assessment, a second explored technical specifications for interconnecting central bank account registers and data systems, and a third shared anonymised case studies of money laundering within European credit institutions.
Perhaps the most interesting and useful document was the fourth, which analysed how Financial Intelligence Units (FIUs) across Europe can cooperate better with the private sector and share data more effectively: two of the main challenges in combating illegal activities.
In the EU, AML and CTF frameworks rely on the private sector’s honesty in reporting suspicious activities. That data then needs to be analysed by FIUs in cooperation with the relevant authorities: a complex network built on trust, which is why it is imperative that companies fulfil their legal obligations at the outset, and receive support and assistance in doing so.
It is also essential that FIUs are able to carry out their work without unnecessary obstacles being put in their way and, given the cross-border nature of many transactions, that they are able to cooperate with each other and with law enforcement, tax, and customs authorities, along with the European Anti-Fraud Office.
All of this should happen in “a more meaningful and efficient manner”, says the report, which suggests that current activities are taking place in something of a vacuum, with inefficient use of resources. So what are the key issues and the remaining obstacles to cooperation?
One is that reporting by the private sector is hampered by the lack of a common template for Suspicious Transaction Reports and of mandatory electronic filing.
Regular feedback by FIUs to companies on the quality of their reports, together with ongoing dialogue about them, are further vital elements in enhancing companies’ ability to identify suspicious activities and file meaningful reports.
In dealing with threats that are common to all member states, FIUs need to establish a common approach, says the report. “This would bolster the work of the FIUs when dealing with beneficial ownership information and overall transparency, risk assessment, cooperating with law enforcement authorities and dealing with large international financial groups.
“FIUs also sometimes lack the proper IT tools to efficiently import and export information to/from the FIU.net that would allow them to analyse effectively the Suspicious Transaction Reports they receive and have divergent access to national databases, which hinders them from carrying out analysis the broadest and most useful way.”
A number of FIUs have started to develop their own IT tools, which make national analysis more efficient. The report suggests that common tools based on artificial intelligence (for joint analysis or trend identification) and machine learning (for feedback to the private sector and development of typologies) could be developed centrally and made available to all member states’ FIUs “through a cooperation and support mechanism”.
National FIUs need to cooperate with each other in the broadest possible way. However, EU research among these organisations reveals that most FIUs have not been sharing reports and data as often as they should have, and some have not been doing so at all.
According to the report, recurring technical difficulties at the FIUs’ joint computing and intelligence network, FIU.net, seem to have been a factor in these difficulties, making it harder for them to share vital information.
Europol has been working to maintain FIU.net and has developed a proposal for a new system that could succeed it. However, that work is currently on hold while the organisation awaits answers to questions raised by FIUs, mostly relating to data protection and compliance issues.
Ironically, therefore, it seems that the EU’s data protection regime may be hampering progress in stamping out money laundering and terrorist financing. Either way, these questions “should be addressed urgently to enable redevelopment to proceed”, says the report.
There are further problems. “Where FIUs exchange information based on requests, the timeframe for the responses diverges substantially and, while in line with international standards, falls short of the EU standards for exchanges of information between authorities in the EU,” it continues.
“Dissemination of relevant information to anti-money-laundering and counter-terrorist-financing and prudential supervisors also seems to be suboptimal, with some obstacles to cooperation existing in the national laws of some member states and operational practices which focus on cooperation with law enforcement authorities. Recent amendments to the Capital Requirements Directive will assist in resolving this latter issue.”
FIUs’ differing status, powers, and organisation within member states continue to affect their ability to access and share relevant financial, administrative, and law enforcement information, concludes the report.
Some aspects of cooperation between different FIUs are regulated by Directive 2019/1153 on access to financial and other information, adopted on 20 June 2019. However, this does not include rules on precise deadlines and IT channels for the exchange of information.
Full compatibility in the exchange of information between FIUs must be ensured, either though regulation at EU level, or by using the possibilities offered by the General Data Protection Regulation (GDPR), says the report.
In the meantime, it is likely that many of the shortcomings identified in the report will continue to exist until FIUs’ tasks and cross-border obligations are more clearly spelled out in the EU’s AML and CTF frameworks.
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