EU Targets Money Laundering and Terror Financing

With economies around the world still reeling from the global coronavirus pandemic, some criminals are opting not to self-quarantine, but to instead exploit the struggles to commit financial crimes.

In Europe, the fallout from the COVID-19 pandemic has created new vulnerabilities to economic crimes such as fraud, money laundering, and currency counterfeiting, officials say.

“The recent increase in criminal activities in the context of the coronavirus pandemic is a reminder that criminals will exploit all possible avenues to pursue their illicit activities to the detriment of society,” Raluca Pruna, head of the financial crime unit at the European Commission, tells Security Management. “The European Union needs to be equally determined in ensuring that it does not benefit from the proceeds of these crimes.”

Given this, European Union officials are beefing up Europe’s defenses. In July, members of the European Parliament (MEPs) overwhelmingly approved a European Union Action Plan designed to help prevent financial-related crimes such as money laundering and terrorist financing.

One of the overall strategies of the action plan is to maintain a more unified front against these crimes, with all EU member countries enforcing current Anti-Money Laundering/Combating Terrorism Financing (AML/CTF) rules, sharing information, and cooperating in investigations. In so doing, EU officials hope that incidents of inconsistent rule implementation can be avoided.

“While current EU rules are far-reaching, they are not applied in a fully coherent manner across the EU,” Pruna says. “Diverging interpretations of EU law therefore lead to loopholes in our system, which can be exploited by criminals.”

The EU’s Action Plan is designed around six principles. The first goal is improved application of EU rules by member states and ensuring that each country’s own rules uphold highest possible standards. For enforcement assistance, the action plan calls on the European Banking Authority (EBA) to make full use of its strengthened powers to tackle crime.

The second goal is for member countries to enforce a single EU rulebook. Currently, the applications of EU rules by member states vary widely; these differing rule interpretations sometimes result in loopholes that are exploited. To help prevent this, the European Commission plans to propose a more harmonized set of rules in the first quarter of 2021.

The third goal is to set up an EU-level supervisor to oversee rule enforcement by all member states. Currently, each individual member country is left to its own devices in enforcing EU rules. But in early 2021, the commission plans to propose establishing an officer to supervise AML/CTF rule enforcement across the entire European Union.

The fourth goal is better coordination and support for EU members’ financial intelligence units, which help identify transactions and activities possibly linked to criminal activities. In the first quarter of 2021, the commission plans to propose to establish a mechanism to help coordinate and support these units.

The fifth goal is to facilitate information exchange, including judicial and police cooperation, and encourage the private sector to play a role in fighting money laundering and terrorist financing. Here the commission plans to issue guidance on the role of public–private partnerships to enhance information sharing.

Such information sharing could be good news for the private sector, says Kieran Beer, chief analyst for the Association of Certified Anti-Money Laundering Specialists.

“Europe needs structures for information sharing desperately, including ones that include the private sector,” Beer tells Security Management. “For example, it is still smarting from the massive amount of illicit Russian money that flowed through Baltic states into Nordic banks to then largely disappear into the global finance system.”

Well-structured partnerships can also help, he adds. “Public–private partnerships have a track record of identifying emerging crime typologies and alerting the private sector to those threats,” Beer says.

The sixth goal is to increase the European Union’s global role in this prevention area. The European Union is actively involved within the Financial Action Task Force, a global money laundering and terrorist financing watchdog, to help shape international standards. EU officials say they will expand their efforts to become the primary global actor in this area.

Overall, the new plan’s emphasis on more consistent application of harmonized regulations across Europe should help prevention efforts, says Edwin Truman, an anti-money laundering expert with the Peterson Institute for International Economics. “In that sense, they should be more effective than previous procedures and processes,” he says.

But the problem will still be an ongoing one, he adds. “No one should be fooled that money laundering will go away. It requires continued vigilance and cooperative efforts,” Truman says.

In addition to the action plan, the EU has a new methodology for identifying nations that are considered high-risk when it comes to money laundering. When a country is listed, banks covered by EU anti-money laundering rules are required to apply increased checks on financial operations involving these high-risk countries, so that suspicious money flows can be identified.

In conjunction with the new methodology, the EU updated its ongoing high-risk third country list. The countries that are now identified as high-risk third countries are: Afghanistan, Bahamas, Barbados, Botswana, Cambodia, Ghana, Iran, Iraq, Jamaica, Mauritius, Mongolia, Myanmar, Nicaragua, North Korea, Pakistan, Panama, Syria, Trinidad, Uganda, Vanuatu, Yemen, and Zimbabwe.

Europol, EU’s law enforcement agency, is also stepping up its efforts to fight money laundering and terror financing.

In June, Europol announced the opening of the European Financial and Economic Crime Centre (EFECC), which is designed to strengthen Europol’s support of EU countries in their fight against financial criminals seeking to profit from the current widespread economic hardship.

The EFECC aims to do this by increasing its operational support for financial investigations by member states. It will be staffed with 65 international experts and analysts and serve as a platform and toolbox for financial investigators across Europe, according to EFECC representatives. In its first actions, the agency will analyze information related to eight incidents investigated by member countries, which involve possible fraud, money laundering, corruption, and counterfeiting.

In a recent report, Europol also sketched out some examples of terrorism financing that officials are trying to fight. Complex criminal structures sometimes generate revenue that supports terrorism—possibly from legitimate businesses, the authors found in the report, European Union Terrorism Situation and Trend Report 2020, which was released in June.

For example, in June 2019, nine Spanish citizens and one Syrian citizen arrested in Spain were suspected of being part of an organization that for many years used a legitimate enterprise structure to hide illicit operations for laundering money. “Subsequent investigations identified family links of the [organization’s] leaders with members of al Qaeda in Syria,” the report found.

And in Lebanon, the extremist group Hezbollah, whose military wing is considered a terrorist organization by the European Union, is suspected of trafficking diamonds and drugs, and of money laundering via the used car business. The report found that capital is sent to the militant group in Lebanon through the banking system and through the physical transport of cash via commercial aviation. “Investigations face the difficulty of demonstrating that the funds collected are channeled to the military wing of the organization,” the report found.

The report also found that the demand for terrorism financing continues. Although the number of terror attacks in Europe dipped slightly from 129 in 2018 to 119 in 2019, major extremist groups like ISIS are still operating.

“IS, while losing its last enclave in Syria, transitioned to a covert insurgent group operating in Iraq and Syria and maintained its global network of affiliates,” according to the report.

Moreover, the lockdown measures taken to control the spread of COVID-19 in 2020 could help to further fuel the radicalization of some individuals, regardless of their ideological persuasion, the report found. This could heighten the risk of future terror attacks.

“Activists both on the extreme left and right and those involved in jihadist terrorism attempt to seize the opportunity the pandemic has created to further propagate their aims,” wrote Europol Executive Director Catherine De Bolle in the report’s introduction.