Brussels is taking the lead in the fight against financial crime. The Council of the European Union and the Parliament have reached a final agreement on creating the Anti-Money Laundering Authority (AMLA). The first of its kind, AMLA will be the bloc’s financial crime watchdog tasked with overseeing and integrating member states’ efforts in the fight against financial crime and terror finance.
While concerns about AMLA’s future implementation and effectiveness are legitimate, there is room for optimism, as it points to at least two significant shifts in policy thinking.
The first is the long-coming awakening to the broader security implications of transnational financial crime, a conclusion hastened by geopolitical shocks such as the Russian invasion of Ukraine and the recently reignited Israeli-Palestinian conflict. Beyond a matter of national law enforcement and criminal justice, the unchecked flow of dirty money is a legitimate hybrid threat, as hostile states and nonstate actors weaponize it as a tool to advance their respective foreign policy and economic interests while undermining democratic institutions and ultimately, the overall security of target countries.
From interfering in a state’s public life through the capture of influential political players, the projection of soft power by channeling murky funds into educational institutions and think tanks to enabling sanctions evasion and sponsoring organized criminal and extremist networks, adversarial states and organizations are exploiting the openness of liberal societies’ financial markets and flooding them with illicit capital. As a result, democratic accountability, transparency, and the rule of law are gradually eroded, which, particularly in weaker states, can lead to extreme cases of takeover of critical institutions, a phenomenon often named state capture.
Although it is challenging to establish a direct correlation between transnational financial crime and the aforementioned political consequences, the abundance of anecdotal evidence makes it too great a threat to ignore. Few examples better illustrate the issue’s magnitude than the United Kingdom’s years-long plight with Russian dirty money flowing into its financial and real estate markets, leading the British Parliament’s House of Commons to report its suspicion that Kremlin-backed oligarchs’ laundering operations play a significant role in sponsoring Vladimir Putin’s foreign policy and domestic agendas.
The current response, spearheaded since the early 1990s by the Financial Action Task Force (FATF), the G7-backed anti-money laundering and counter-terrorism financing (AML/CFT) policy standard setter, has been the call to harmonize laws and regulations worldwide, issuing recommendations on issues ranging from the identification of customers by financial institutions to the seizure of assets by law enforcement and judicial authorities. The implementation has been – putting it lightly – grossly inadequate, and countries that do not live up to standards risk ending up on the FATF’s dreaded watchlists.
This suggests that while illicit capital easily crosses borders, laws do not. This may be true in most cases, but it is not entirely applicable to the European Union.
Harking back to the EU’s predecessor, the European Community issued its first Anti-Money Laundering Directive in 1991. Currently in its sixth generation, the directives are a body of legal acts primarily influenced by the FATF’s policy recommendations.
Though binding for all member states, the directives’ transposition across the bloc has had its fair share of failures. At the same time, its effectiveness was put into question when confronted with massive money laundering cases such as the infamous Russian Laundromat scheme, in which between 20-80 billion dollars moved across the globe through financial institutions based in EU member states Latvia, Estonia, Lithuania, Cyprus, Denmark, Germany, and the Netherlands.
Community law by itself is not enough to face the challenge of safeguarding Europe from illicit finance. The lack of proper European-level coordination and oversight was, among other unflattering critiques, the subject of a 2021 special report by the European Court of Auditors on the EU’s efforts to combat money laundering. The European Commission, currently charged with such a task, was deemed too slow due to its limited resources and poor communication with Member States.
This is where the AMLA will step in, a centralized EU authority tasked with implementing and harmonizing the bloc’s AML/CFT framework, promoting the exchange of financial information, and wielding enforcement and sanctioning powers against supervised institutions that fail to comply.
Which leads to the second conclusion.
The return of interstate warfare in the continent also forced policymakers to grapple with the old, thorny issue of strategic autonomy, and it became clear that it had to be understood beyond the traditional defense perspective, cross-cutting several EU policy areas. Strategic autonomy for our time is essentially multidisciplinary.
Such was the mentality behind the Council’s April 2022 conclusions on the strategic autonomy of Europe’s financial sector, which outlined the need to avoid risks from relying on outside countries to ensure its strength and resilience. Historically, the United States has been the regulator of the global financial system for most of the postwar era, pioneering efforts in the fight against money laundering and terrorism financing since the 1970s, a role that Brussels mostly avoided when not outright handed over to Washington.
Despite growing geopolitical instability and inflationary shocks, the euro remains the second most important currency globally. The share of euro-denominated assets, such as debt securities and loans in global markets, increased by 0.5% in 2022, while the U.S. dollar has declined by more than two percentage points, as observed by the ECB’s report on the euro’s international role.
In addition, according to Europol’s report, the magnitude of financial crime activities in Europe is estimated at a yearly amount equivalent to 1.3% of the EU’s GDP, approximately 188 billion euros, a significant share of the global estimate of 715 billion to 1.87 trillion euros.
These scenarios only emphasize the implausibility of the continued reliance on an outside actor that – despite a critical ally and partner – is often at odds with European interests, a reality that might further deteriorate depending on the outcome of the 2024 U.S. presidential elections.
From integrating defense capabilities to shoring up the resilience of critical markets and infrastructure, Europe is prompted to become ever more self-reliant if it intends to adapt to an increasingly multipolar world marked by constantly evolving and unpredictable risks.
Thus, at least on the frontline against illicit finance, there is room for optimism with AMLA’s creation as it demonstrates the European Union’s efforts to exercise sovereignty in defending its financial system from being instrumentalized for the interests of its rivals and to the grave detriment of its security.
Undoubtedly, there are many institutional and political hurdles to overcome until AMLA becomes fully operational (estimated for 2026). However, of the valid existing and upcoming critiques, the lack of vision and ambition to step up to the gravity of the challenge should not be one of them.
Understanding the hybrid character of today’s threats means building equally multipronged responses, and it would be naive to conceive of the integration of European defensive capabilities from a solely military perspective. Taking the lead in the fight against illicit finance and its corrosive effects on European security resonates with Europe’s ambition – if not urgent necessity – to achieve strategic autonomy and exercise a greater role on the global stage.
[Photo (cropped) by Ralf Roletschek, via Wikimedia Commons]
The views and opinions expressed in this article are those of the author.
Stefano Marzi is a lawyer and anti-money laundering compliance officer based in Poland, and an independent researcher of the intersection between financial crime, security, democracy, and the rule of law.
