EU needs strong enforcement of money-laundering laws

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV Media network.

The eurogroup’s insistence that Cyprus’ anti-money laundering framework is assessed by a private firm violates EU law, argues Andreas Frank.

Andreas Frank has been working with the European Commission on the implementation and enforcement of the Anti-Money Laundering Directive (AMLD) since 2004. During that time, he has initiated two infringement cases for violations of the directive. Frank is also an advisor to the Bundestag and the Council of Europe. This commentary was first published by EURACTIV Germany

"The greatest challenge facing the European Union and the eurozone in the coming year is to improve the efficiency and effectiveness of European institutions.

Each member state is responsible for the implementation of EU law within its own legal system. Under the treaties, the Commission is responsible for ensuring that EU law is correctly applied.

Consequently, where a member state fails to comply with EU law, the Commission – the guardian of the treaty – has been empowered to bring the infringement to an end and, where necessary, may refer the case to the European Court of Justice.

In reality the Commission has neither the manpower nor the resources to fulfil its duties. Instead of supporting a strong Commission, the member states undermine the integrity of the Commission by excluding it from decisions which directly affect the Commission or should be part of its mandate.

The current discussion on the bailout of Cyprus exemplifies the Commission’s weakness and inability.

Germany and other EU member states have raised concerns that Cyprus' banks facilitate money laundering and tax evasion, especially for its many Russian clients.

As a precondition for granting financial assistance to Cyprus the Eurogroup, the IMF but also the Commission demand an independent audit to evaluate the anti-money laundering framework put in place in Cyprus.

The Cypriot authorities had always resisted an audit by a private company. According to a legal opinion of the Republic’s Attorney General, such a move would be contrary to Cyprus’ Constitution.

The Cypriot officials had proposed that the audit would be done under the auspices of the Cypriot central bank by the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (Moneyval).

The Troika and the Cyprus Finance Ministry have reached an agreement on the terms of reference governing the independent audit into of Cyprus’ legal framework against money laundering and its implementation.

The audit into Cyprus’ legislation against money laundering will be conducted by independent private firm with the participation of the Moneyval.

Moneyval is highly respected and one of eight so-called FATF-style regional bodies (FSRBs) which have been established for the purpose of disseminating international standards (40+9 Financial Action Task Force (FATF) Recommendations) to counter money laundering and terrorist financing throughout the world.

Moneyval is an independent monitoring mechanism within the 47-nations Council of Europe answerable directly to the Committee of Ministers.

The FATF, IMF and eight FSRBs conduct peer reviews of each member – so-called mutual evaluation reports (MERs) – on an ongoing basis to assess levels of implementation of the FATF Recommendations.

The lack of compliance with the FATF Recommendations may lead to a “name and shame“ listing of those jurisdictions that pose a risk to the international financial system. The Recommendations however do not create legal obligations, instead, they can be viewed as soft law or pledges by member states.

Conversely, the EU money laundering directive (AMLD) – which is based on the FATF Recommendations – constitutes “hard” law. All member states have to implement and enforce the AMLD.

Cyprus is a member of the Council of Europe and Moneyval but first and foremost a member of the European Union and a Euro member country. EU law should be applied in all aspects.

Cyprus expects the €17 billion rescue package mainly from the Euro member states and the Troika (European Commission, European Central Bank and the International Monetary Fund).

As a troika member the European Commission is directly involved in the Cyprus bailout deal and should know exactly the status of implementation and enforcement of the AMLD in every single member state.

By supporting the demand for an independent audit of Cyprus’ anti-money laundering framework by a private company, the Commission does not only break EU law but also destroy its foundation.

Why should the member states comply with EU law when the Commission confirms that it is unable to fulfil its obligations in accordance with the treaties on European Union?

The fact that the he Eurogroup finance ministers never contemplated the Commission to lead according to EU law the review of Cyprus’ anti-laundering efforts reflects the disrespect of some EU member states for the EU institutions.

Without strong, respected and functioning EU institutions, the euro crisis will stay with us for many years to come. In the end the EU could implode."

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