The Efficacy of the EU’s Anti Money Laundering and Terrorist Financing Architecture

The EUROPOL report “From Suspicion to Action converting financial intelligence into greater operational impact” presents an analysis of the member states of the EU anti money laundering and terrorist financing architecture which is founded upon the Financial Intelligence Unit (FIU) which collects Suspicious Transaction Reports (STR) from the regulated sector of these states and decides upon an action in response.

The report states that there is no homogeneous FIU structure that spans the member states of the EU as a result a comparative analysis of the efficacy of the EU’s FIU model is impossible. The report is not and cannot be a vitally necessary comparative analysis as the FIU model is defined by the agendas of the individual member states of the EU thereby denying the need for and making impossible EU wide action. Organised crime in the EU is not faced with such limitations.

With the existing structure only 10% of STRs receive further investigation after collection by FIUs and this figure has remained unchanged since 2006. Whilst the volume of STRs received by FIUs from the regulated sector continue to increase seen in the 1 million STRs received by EU FIUs in 2014. The volume of STRs received is increasing but the STRs acted upon remains stagnated at the 2006 level. Clearly either the EU is blessed with saints utilising its regulated sector or the FIU framework of the EU is in collapse. Or is it complicity? Either way the EU is a paradise for organised crime hence the assault that is growing in intensity. The operational nature of EU FIUs is again illustrated by the fact that over 65% of STRs are received by two EU member states- the UK and the Netherlands. Which again paints the operational picture of saints in the rest of the EU or of an operational system for the generation of financial intelligence that has huge holes in it.

Reporting from the regulated sector of EU member states show the propensity of certain players to report and not to report STRS where banks and money service businesses account for the majority of STRs received by the FIUs whilst others as the luxury goods dealers and the bureaux de change generate low levels of STRs with the rest of the regulated sector ranging between the high and the low. The response is uneven in the regulated sector to say the least and with an estimated 0.7%-1.28% of annual EU GDP as being generated by suspicious financial activity a conservative estimate at least the spotty performance of the EU regulated sector is in fact indicative of the failure to respond adequately to the threat posed. This reality is illustrated by the fact that less than 1% of STRs received by the FIUs of the EU in 2013-2014 dealt with terrorist financing placed in the context of the attacks on the EU and the nature of this specific threat posed.

A specific flaw identified in the report is the emphasis placed on monitoring cash transactions but what if the terrorist and organised crime networks are interacting with the regulated sector in a manner to ensure the trip wire is not triggered? What happens when in the EU you have a member state where large cash transactions are part of licit transactions in the regulated sector as in Luxembourg? What if they are purchasing impunity from operatives of the regulated sector?

The manner in which EU FIUs exchange intelligence generated via STRs and otherwise amongst themselves doesn’t necessarily include law enforcement agencies involved with criminal investigations where such intelligence can be of grave strategic value. FIUs can therefore have in their possession strategically important intelligence on an organised crime group which is under criminal investigation by a law enforcement agency and that agency is ignorant of said intelligence. In the case of transnational organised crime in the EU this is a major flaw in the architecture and a hindrance to effective law enforcement. Again another instance where the FIU architecture of the EU favours the operational integrity of organised crime in the EU.

The evolution of the digital platform for financial services presents a grave threat to the anti-money laundering architecture of the EU as it places questions of the ability of the regulated sector to monitor themselves and generate STRs for the FIU that are reflective of the operational reality of this sector. In addition to the ability of the FIUs to monitor the regulated sector to ensure compliance to legislation is also in question.

The growing demand for online services which includes online payment systems premised on transnational and globalised environments and service providers challenges the relevance and credibility of the present EU architecture premised on national spaces. The online markets therefore demand a EU response via a new architecture but does national politics of the EU embrace the need for responses that transcend the nation state and narrow nationalism? Transnational organised crime has no such stumbling blocks to their operational strategies as the pursuit of the maximisation of profit demands a transnational and globalised stance in the 21st century. The repeated failure of the politicians of the EU to deal with the threats posed is deepening the impunity of transnational and globalised crime in the EU.

The Ndrangheta has operational clans in Italy, Germany, Canada, USA, Australia, Latin America and other areas. The clan in Germany falls under the scrutiny of the FIU in Germany through a STR generated by its activity but law enforcement in Italy is not privy to this information as a result of the shortcoming of the present EU architecture. But the clans in Germany and Italy have at their disposal a series of flaws in the EU architecture waiting to be exploited in order to wash the cash raised by their daily operations. In addition to the reality that you can purchase impunity for the right volume of cash to be washed for a laundryman’s charge and there is no shortage of laundrymen the world over. Being globalised the Ndrangheta has other options which involve various instruments to move their proceeds of crime to laundries external of the EU. In these schemes the key is cash in transit which is most vulnerable to interdiction provided the interest and the means exist in the member states of the EU. But what of the need to deal with the globalised operational platform of the Ndrangheta which means that STRs in the hands of FIUs of the present 28 EU member states must speak to law enforcement agencies in the global context which is strategically necessary to map the global operations of the Ndrangheta. The EU under its present FIU architecture is failing to grapple with the threat of transnational, globalised organised crime.

What is clearly apparent from the report of EUROPOL is fact that the EU member states are in 2017 playing catch up with organised crime in the EU which is providing impunity to the operations of organised crime in the EU. This operational and strategic failure of the EU member states and its politicians is impacting the social order of these member states which will effect far reaching changes to wide ranging spaces of the social order which will challenge the legitimacy of the state. The failure and refusal to grasp the reality that a malformed EU is the perfect gift to organised crime and its quest for impunity in the social order will continue to create a Frankenstein monster playing catch up with entities that post grave threats to the social order. The present reality is even if you dismantle the EU the grave need for trans-European institutions to police transnational organised crime in Europe is now a strategic necessity. To persist with a malformed EU is the worst of the choices possible and a gift to organised crime in the EU that will never be refused but exploited intensely by organised crime in the EU.

https://www.europol.europa.eu/publications-documents/suspicion-to-action-converting-financial-intelligence-greater-operational-impact

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