Mapping money laundering in Europe

Money laundering is a very complex issue as it constitutes not only a crime in itself but it is also part of any criminal activity yielding money. Despite a large number of reports on suspicious transactions, the success rate in actual revelation of the crime and asset recovery is still extremely low. Via continuous improvement of its legal framework and increased action, the EU tries to turn around the situation.

The term money laundering names the method of disguising illegal origin of wealth. In other words, money obtained in illegal ventures should eventually look like money stemming from a legal source. Otherwise it could not be used without attracting suspicion of legal authorities.

The most common money laundering process can be divided into three steps: The first step is the so-called placement, where “dirty” money is inserted into a legitimate financial institution such as a bank deposit. This constitutes risk, especially when it comes to large sums. The second stage is the layering, which names the process of transferring the money through numerous channels. These various transactions alter the money’s form and obscure its path. The last step is the integration, where the money finally re-enters the legitimate economy and can’t be identified as illegal anymore but is spent and used in a common way.

Besides, a novelty to money laundering mechanisms is added by increasing globalisation and the rise of information technology. These developments facilitate and accelerate financial transfers across international borders. The more entangled the money gets within the international banking system, the harder it is to trace its origin.

As organised crime activities are usually linked to financial profits, money laundering is an omnipresent feature. Certain criminal groups are, however, focussing more on money laundering than others. These include drug traffickers due to their involvement with huge amounts of cash. Corrupt politicians and officials count as another major group of offenders laundering bribes, public funds and even development loans. Probably the most imminently dangerous group using money laundering to disguise their intents are terrorists, who rely on illegal money flows for sustaining themselves and their endeavours. On the one hand terrorist organisations draw on various illegal sources for generating their income, on the other hand they also hide the destination for which the financial assets are collected. This twofold concealing constitutes the particularity of the specific subfield of terrorist financing.

All in all, money laundering allows criminals to protect their asset bases and to avoid suspicion and prosecution by law enforcement agencies. It is therefore not only a crime in its own rights, but also eliminates the trail of evidence to other criminal offences. As a consequence, the disruption of the money laundering flows additionally supports law enforcement agencies in general, because it leads the way to underlying crimes and distorts criminal practices at the same time.

Europe takes countermeasures

The European Union is well aware of the major threat money laundering poses to its security as well as to its economy. Hence, it is working on improving legal determinations and law enforcement actions. In fact, the Commission has made the fight against money laundering and terrorism financing one of its official priorities.

The European Commission’s action plan is based on the EU’s 4^th Anti-Money Laundering Directive, which was adopted in 2005 and revised since then. In its essence the directive requires financial operators and the non-financially operating gatekeepers to report any suspicious or unusual activity. Its goals are stipulated the following way:

• increase transparency about who really owns companies and trusts to prevent money laundering and terrorist financing via opaque structures;
• improve the work of Financial Intelligence Units with better access to information through centralised bank account registers;
• tackle terrorist financing risks linked to anonymous use of virtual currencies and of pre-paid instruments;
• ensure a common high level of safeguards for financial flows from high-risk third countries. [1]

Furthermore, there are special conditions and topic developments that the EU tries to include into its action plan:  For instance, the revelations of the Panama Papers on major tax avoidance are taken into account. Also, the emergence of crypto currencies has been recognised as a crucial development that must not be overlooked. Money laundering is increasingly taking place in on exchange platform for bitcoin or similar systems. In this sense, the EU has introduced a very broad definition of virtual currencies and is confident about covering the potential loopholes.

At the same time, Europol draws a more negative picture when it comes to assessing money laundering and placing effective countermeasures in Europe. Europol highlights that reports on suspicious transactions are indeed numerous, but only 10% of them are investigated and barely even 1% of criminal proceeds are confiscated by EU authorities. In order to get a better grip on the matter, Europol hence conducts research on forensic means and on laundering methods. Thereby, the main finding is that there is no lack of activity or resources put into it but that the resources are not allocated efficiently. Most importantly, law enforcement agencies predominantly work on a national scale whereas criminals work internationally, particularly as the use of the borderless virtual environment is becoming common place.

In conclusion it becomes clear that there is still a long way to go for European institutions and governments, and that cooperation and transparency is key for success. However, it also becomes apparent that keeping up the active fight against money laundering is definitely crucial as it has the potential to reduce organised crime in general.

References

[1] European Commission. (2017). Strengthened EU rules to prevent money laundering and terrorism financing. Fact sheet.

[2] Europol. (2017). Global anti-money laundering framework – Europol report reveals poor success rate and offers ways to improve. [online] Available at: https://www.europol.europa.eu/newsroom/news/global-anti-money-laundering-framework-%E2%80%93-europol-report-reveals-poor-success-rate-and-offers-ways-to-improve

[3] Europol. (2018). Money laundering. [online] Available at: https://www.europol.europa.eu/crime-areas-and-trends/crime-areas/economic-crime/money-laundering

[4] Guarascio, F. (2017). EU agrees clampdown on bitcoin platforms to tackle money laundering. Reuters. [online] Available at: https://www.reuters.com/article/uk-eu-moneylaundering/eu-agrees-clampdown-on-bitcoin-platforms-to-tackle-money-laundering-idUSKBN1E928M

[5] UNODC. (2018). Introduction to money-laundering. [online] Available at: http://www.unodc.org/unodc/en/money-laundering/introduction.html?ref=menuside