In February, Global RADAR chronicled a money laundering scandal that took the European Union by storm, as Latvia’s 3rd largest bank (ABLV) was forced to close its doors after FinCEN accusations sent the institution into a downward spiral that all but lead to its ultimate demise. Following what was deemed as a “longstanding disregard for anti-money laundering safeguards”, the Financial Crimes Enforcement Network moved to have the bank prohibited from opening/maintaining correspondent accounts in the United States due to their profound deficiencies that fostered illicit activity. As a result, the Treasury Department bureau was forced to move quickly in order to protect the U.S. financial system from the emergence of potential risks that are often facilitated by illicit financial conduct. FinCEN believed that ABLV’s failure to implement and maintain effective anti-money laundering (AML) and counter-terrorism financing policies and procedures made it an attractive option for fraudsters and financial criminals – a suspicion that became fact once the bank’s recent transactions were analyzed.
In a press release issued following ABLV Bank’s naming as an “institution of primary money laundering concern” in mid-February, FinCEN announced a slew of its findings on the organization, a list that included the orchestration of money laundering schemes and obstruction of regulatory justice. The report states “Illicit financial activity at the bank includes transactions for parties connected to UN-designated entities, some of which are involved in North Korea’s procurement or export of ballistic missiles. In addition, ABLV has facilitated transactions for corrupt politically exposed persons and has funneled billions of dollars in public corruption and asset stripping proceeds through shell company accounts. ABLV failed to mitigate the risk stemming from these accounts, which involved large-scale illicit activity connected to Azerbaijan, Russia, and Ukraine” (Hudak, 2018). Outside of solely ABLV, Latvia as a whole has struggled with stopping a growing problem that has now been deemed as “institutionalized money laundering.” As a result, the country recently began lobbying for an improved approach to the handling of money laundering cases and aid in areas that have been historically problematic. This approach would entail greater cooperation between all European nations, and would seek to include the sharing of precious financial crime-hindering resources with lesser-developed countries in the region.
Thus far, Latvia’s stance has been successful in riling up other small European states, but has not been well-received by larger nations – the ones that will undoubtedly play the biggest role in both enacting and following through on these drastic changes. Germany has been the main opponent of this approach thus far, arguing that the powers Latvia is trying to obtain are better suited for the national level and that the law enforcement bodies of these nations are not currently constructed to handle matters of this nature, nor such a dramatic increase in workload. Peters Putnins, head of Latvia’s Financial and Capital Market Commission sees no downside to these developments however, stating his belief that if working together, Europe could all but eliminate their financial crime issues that have continued to cause problems in 2018. “Europe together could definitely do it,” said Putnins, “Why hold that kind of infrastructure in each individual country?” (Eglitis, Comfort, and Weber, 2018).
It is clear that some form of modifications are needed however due to the pervasiveness of the issues at hand. Bloomberg cites a disappointing Europol statistic that estimates that “just 1 percent of about 120 billion euros ($145 billion) that are laundered annually in the EU are detected and recovered” (Eglitis, Comfort, and Weber, 2018). Many believe that greater information sharing and cross-border cooperation will aid in both detection and subsequent prosecution. For this to be effective however, all parties involved must fully buy-in to the process and realize that a significant amount of time and effort will be needed both initially and throughout its remainder for a plan of this magnitude to come together successfully. Among the main sticking points that have raised questions amongst state representatives about the ultimate success of this plan are the risk profiling differences seen from one country to the next, as well as contrasts in cross-border anti-money laundering legislation, with more concerns likely to emerge should the idea be delved into any further. On the bright side however, the European Union has already begun to make moves towards centralization in the financial sector, albeit for other purposes. Bloomberg notes that “the 19-nation euro area has made efforts to centralize supervision of its biggest lenders, handing responsibility to the European Central Bank (ECB)”, but a fair amount of progress will still be needed in order for anti-money laundering supervision and enforcement to get in-sync across varying national systems (Eglitis, Comfort, and Weber, 2018). Although there is still a divide amongst small and large European countries in regards to the unification of AML measures, the opportunities that could be afforded by such a move would likely put a serious dent in the illicit financial flows seen across Europe, and thus should not be discredited at this time.