Whilst EU leaders and policymakers have struggled to maintain the security of the EU’s external physical border, the financial border is wide open to all. At a time of focus on the funding of extremism from third countries, this is a worrying weakness, writes Tom Keatinge.
Tom Keatinge is the Director of the Centre for Financial Crime & Security Studies at the Royal United Services Institute (RUSI), an independent think tank on international defence and security.
The seeming inability of Brussels and EU national capitals to control migration has, to a greater or lesser extent, dominated EU discourse for years, most recently in connection with the waves of those displaced by conflicts from Nigeria to Libya, and Afghanistan to Syria. Internal migration was effectively harnessed by Leave campaigners as an emotive contributor to the UK’s vote to exit the EU.
A rising national desire to control physical borders has led political leaders to question the future of the Schengen Agreement that abolished many of the EU’s internal borders as the seeming ease with which migrants have been able to cross the EU’s external border has led countries across the bloc to re-impose emergency border controls and erect fences. Following the terrorist attacks in Paris in November, President François Hollande reportedly wanted to push Schengen flexibility ‘to a point it hasn’t gone to before’.
Whilst policymakers grapple with the challenges of migration to, and within, the EU, the Union’s financial borders are wide open with virtually no entry controls in place, and what monitoring exists is either inadequate or in the hands of the financial services industry, not governments.
Why should this matter? Surely in the globalised marketplace in which the EU plays such a significant role, money should be allowed to flow in a free and uninhibited manner? This is of course true, but just as with the flow of people, it is perhaps wise to know what these money flows are intended for and where they come from. This information is almost entirely unknown to EU authorities.
The issue of provenance and purpose of funds flowing into the EU has been brought to the fore in the past 24 months as European governments have begun to scrutinise domestic extremism as a result of an increase in related terrorist attacks. Four examples provide context.
In 2014, the Dutch government commissioned a report (this author was a member of the research team) ‘to provide an overview of the size and scope of foreign financial support to Islamic institutions in the Netherlands, as well as the potential influence that foreign actors may exert (partly) as a consequence of this funding.’ The first stage of the research was simply to determine the feasibility of gathering sufficiently detailed information in order to provide an assessment of the source and nature of foreign financing flowing into the Netherlands. As the report notes, the feasibility of conducting a comprehensive study was limited; little data were available within the Netherlands or from selected source countries that provided anything but a superficial insight into the financial flows that are clearly entering the country.
Secondly, in December 2015, whilst making the case to Parliament for bombing ISIS targets in Syria, former British Prime Minister David Cameron announced a ‘comprehensive review to root out any remaining funding of extremism within the UK’ examining in particular ‘the nature, scale and origin of the funding of Islamist extremist activity in the UK, including any overseas sources.’ Whilst this report does not appear to have been made public, the extent to which cross-border funding flows into the UK are known is limited to border cash declarations, providing little insight into the metrics that the Prime Minister set.
Thirdly, France has been grappling with the same challenge as it has suffered repeated terrorist attacks amidst concerns that some mosques are benefiting from funding from extremists, often based abroad, and intended to encourage radicalisation. French Prime Minister Manuel Valls has suggested that a temporary ban should be placed on funding from abroad for mosques, noting the extensive state funding of more than 300 mosques and prayer rooms in France.
And finally, in an unusually undiplomatic move late last year, German vice-chancellor Sigmar Gabriel called on Saudi Arabia to stop funding Islamic extremism in the West, reportedly claiming that “Many Islamists who are a threat to public safety come from these communities in Germany.”
These four examples highlight the challenge that faces the EU. It simply has no complete (or even partially useful) view of the funds that flow across its external borders. As things stand, physical cash movements of greater than €10,000 must be declared by passengers entering the EU, although the stated purpose can be as vague as ‘investment’, offering little intelligence value.
The Financial Action Task Force, global standard setter for anti-money laundering and counter-terror finance, requires countries to have in place controls for detecting the cross-border movement of physical cash or cash equivalents (such as bearer bonds) in order to prevent criminals or terrorists from financing their activities. The only requirement for the electronic movement of funds (so-called wire transfers), however, is to ensure that all appropriate details are completed on transfer orders. Furthermore, the EU’s primary directive for maintaining the integrity of the financial system, the Fourth Anti-Money Laundering Directive (4MLD), is likewise silent on the matter.
The result of this lack of cross-border reporting requirement is that governments are entirely reliant on the monitoring and judgment of the banks and money service businesses that facilitate these flows to determine what is suspicious, based on almost no official guidance. And, of course, much of the funding that enters the EU to support extremism is not in the least bit suspicious so is highly unlikely to be reported even if it were to be identified. Whilst some limited cross-border reporting is required – for example Spain imposes requirements related to certain high-risk jurisdictions – the more general lack of insight compares strikingly with countries such as Australia where all international funds transfer instructions (both sent and received), along with physical cash movements of more than AUD10,000 (€7,000), must be reported.
The EU’s counter-terrorist action plan and the 4MLD are the cornerstones of the EU’s strategy for policing financial activity, yet the proactive, government-led defence of its external financial borders appears almost entirely absent from its strategy, creating a material security weakness for those seeking to identify and disrupt dubious funds flowing into the Union.