Identifying Money Laundering: Euro Banks Hamper Efforts Says Regulator

Niall Hearty of financial crime specialists Rahman Ravelli assesses the situation.

Europe’s banking regulator says that the authorities are losing the chance to detect suspicious transactions because banks are too keen to drop risky customers.

The European Banking Authority (EBA) has warned that the practice of de-risking is hampering efforts to investigate financial crime. De-risking is where banks look to avoid having to meet demanding compliance requirements by refusing to service customers in jurisdictions or business sectors that have a high risk of money laundering.

In a statement, the EBA said:  “The EBA’s findings suggest that de-risking has a detrimental impact on the achievement of the European Union’s objectives, in particular in relation to fighting financial crime effectively.” 

The EBA said that financial institutions’ refusal to provide services to those they view as high-risk may lead to those potential customers seeking “alternative payment channels” to conduct their business.  As a result, the identification and reporting of suspicious transactions becomes more challenging, which makes it more difficult to prevent money laundering and terrorist financing. 

The EBA said banks should offer high-risk customers “basic financial products and services” that allow them to participate in European Union markets while restricting their capacity to commit financial crimes. 

Major money laundering scandals in recent years have placed pressure on the European Union to tackle the problem. Last year, the European Commission announced that an anti-money laundering agency would be created by 2023, which would take over the EBA’s role of monitoring the riskiest financial institutions.  

There appears little doubt that the authorities are losing opportunities to detect suspicious transactions. But the authorities need to take a more robust approach and engage more effectively with financial institutions, so that money laundering and terrorist financing can be tackled.