The importance of electronic anti-money laundering checks

Mortgage Introducer

October 1, 2018

Martin Cheek (pictured) is managing director of SmartSearch

The European Commission proposed last week that there should be an EU-level agency to put pressure on national banking supervisors to investigate allegations of money laundering.

If given the go-ahead, the new plans see the European Banking Authority (EBA) given extra powers to impose sanctions on banks in member states that either don’t have the right policies and procedures in place or are complicit in money laundering.

The proposals follow a number of banking scandals such as the collapse of ABLV Bank in Latvia, the freezing of assets at Pilatus Bank in Malta following allegations against its Iranian owner and investigations such as the Panama Papers and the Global Laundromat series, which involved the movement of £16bn in dirty funds from Russia.

These recent scandals have highlighted the poor AML supervision in these member states, and the lack of cross-border cooperation between the different enforcement agencies in each country and this, in turn, has completely undermined trust in each country’s ability to enforce its own anti-money laundering rules.

And it is true; money laundering supervision is very patchy across Europe with inconsistent oversight which is not helped by the fact that the European Money Laundering legislation comes in the form of a Directive as opposed to a regulation.

Currently, each member state is left to amend existing legislation – or create new ones – which means there is often an inconsistent approach to both the law and supervision in each country.

Under the new plan, the current AML resources that are currently spread across different EU authorities would centralise within the EBA which would then become the “data-hub on money laundering supervision in the Union.

The EBA would also regularly assess the performance of national authorities and would have powers to request investigations into specific banks and could force them to respect EU rules.

We know money laundering is a huge threat, with the International Money Laundering Information Bureau (IMLIB) estimating that money laundering is the world’s third largest industry by value.

Valdis Dombrovskis, vice-president for financial services policy at the commission says that anti-money laundering supervision has “failed all too often in the EU” and that enhancing the powers of the EBA would ensure that all the different authorities work together to exchange information and that AML rules are “enforced effectively across EU countries”.

Clearly, something needs to be done, because the lack of cooperation and consistency across the EU is allowing dirty money to flow from countries with high levels of corruption into Europe.

Centralising everything under one umbrella certainly makes sense. A new permanent committee, whose aim is to bring together national money laundering supervisors is, therefore, a really positive move.

But, it is only one part of the solution. It is all very well demanding that banks have the right policies in place, but with money launderers getting cleverer and cleverer, how can banks ensure they have the right systems in place to stop them? The answer is simple – electronic identification.

Electronic identification is now widely recognised as the most reliable, secure and efficient source of information for identity solutions, and is the only option for a failsafe system that will guarantee to recognise fraudulent documents and AML activity.

The Fifth Money-Laundering Directive calls electronic identification means to verify customer information where available, and as fraudulent documents become even more sophisticated they will eventually become impossible to spot with manual checks and electronic identification will have to become mandatory.

With this new central AML agency proposed – which could see a huge clamp down on banks that are have not got the correct processes in place – there has never been a better time for firms to ensure they have appropriate AML systems in place.

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