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EU States Asked to Counter Financial Crime

Cooperation among national forces to counter financial crime is still weak and has prevented enforcement measures, even in cases where there has been serious suspicion of wrongdoing
The collapse of Latvia’s ABLV and the freezing of operations at Malta’s Pilatus Bank (picture) exposed shortfalls  in recent reviews of anti-money laundering rules.The collapse of Latvia’s ABLV and the freezing of operations at Malta’s Pilatus Bank (picture) exposed shortfalls  in recent reviews of anti-money laundering rules.

European Union banks face an anti-money laundering crackdown before the end of the year following allegations of wrongdoing at two Latvian and Maltese lenders, top officials say.

The collapse of Latvia's ABLV and the freezing of operations at Malta's Pilatus Bank exposed shortfalls in recent reviews of anti-money laundering rules, which the 28-member EU is now trying to address, Reuters reported.

Both banks were at the center of money laundering allegations by US authorities, which the head of eurozone banking supervision, Daniele Nouy, said revealed a "very embarrassing" weakness in European oversight.

"There is agreement on the importance of enhancing the current monitoring of the implementation of anti-money laundering measures," Mario Centeno, head of the Eurogroup of eurozone finance ministers, said in a letter to the President of the European Council, Donald Tusk, before a summit on Friday.

He said a report on strengthening oversight will be prepared in July, paving the way for "further measures by end 2018".

Newly-adopted anti-money laundering rules, set to enter into force by 2020, foresee the establishment in all EU countries of centralized bank account registers to gather financial data.

But cooperation among national forces to counter financial crime is still weak and has prevented enforcement measures, even in cases where there has been serious suspicion of wrongdoing.

Pilatus had long been a concern for eurozone supervisors, but Maltese authorities froze the bank's assets only after its chairman was arrested in the United States in March on charges of money laundering and bank fraud. Latvia's ABLV has denied any wrongdoing.

The two cases raised wider concerns over national oversight in smaller EU states. The European Banking Authority this month began a formal inquiry into how Maltese supervisors dealt with Pilatus after they failed to act for several months on its Azeri connections.

Latvia is investigating whether its banks acted as conduits for Russian funds used to interfere in elections and politics elsewhere, Reuters exclusively reported last month.

Scandals

"We need to draw practical lessons from the events in Malta and Latvia," EU justice commissioner Vera Jourova told EU lawmakers this week, calling the Pilatus and ABLV cases "scandals" that required actions.

She flagged the possibility of setting up an EU "centralized body" to address money-laundering risks, which are now supervised by a range of national authorities.

Some states have already expressed a will to establish a new body to counter money laundering, while others favor giving more power to one of the existing EU regulators, like the EBA.

Germany and France, the eurozone's largest members, last week called for an EU deal by the end of the year to measure the money-laundering risks within the banking sector.

However, the growing political demand for a crackdown faces a tight legislative calendar, giving new proposals nearly no chance of EU parliament approval before elections due next year.

Changes could however be made to existing proposals, such as an overhaul of banking capital rules on which final talks are due to begin next month. But that would require a significant deviation from the scope of the proposed rules.

Trade War Fears

Fears over higher global barriers to trade sent European stocks to 11-week lows on Wednesday, with little other company and economic news to provide relief from rising protectionism which has hit equity markets hard.

Europe's falls came after Asian stocks sold off violently on trade fears, with Chinese blue-chips hitting a 13-month low. The pan-European STOXX 600 extended its opening fall to 0.6%, hitting its lowest level since April 12 as financials and industrials stocks suffered.

The banks sector was the worst-performing, down 1.4% as investors worried about the impact of protectionism on the economy and a flattening yield curve on banks' margins.

Bank shares fell to their lowest since December 2016 while the autos sector, a prominent target of higher US tariffs, neared a 10-month low. Auto stocks fell 1.1% and drove Germany's DAX down 0.8% as BMW, Volkswagen and Daimler declined.

Industrials Airbus, Siemens and ABB were also big drags on the index, continuing their fall as investors priced in a more difficult trade environment for big exporters.

Euro Inches Higher

The euro rebounded on Wednesday, while traders said markets needed clarity on a developing political crisis in Germany and an EU summit before pushing the euro higher.

Worries that a full-blown trade war could break out between Beijing and Washington continued to weigh on currencies, despite data showing profits at China's industrial firms rose sharply.

The yen, a prominent gauge of investor risk aversion, gained while the Chinese yuan slumped to a 6-month low.

The euro rose 0.2% to $1.167 after suffering falls overnight, while the dollar edged lower, its index against a basket of currencies down 0.1% at 94.559.

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