How the EU Can Take On Dirty Money, the Darker Side of Globalization

How the EU Can Take On Dirty Money, the Darker Side of Globalization
Thomas F. Borgen, the CEO of Danske Bank, at a press conference in which he resigned following revelations of money laundering via its Estonian branch, Copenhagen, Sept. 19, 2018 (Photo by Liselotte Sabroe for Ritzau Scanpix via AP Images).

When the European Commission recently attempted to blacklist 23 countries that it accuses of maintaining deficient systems to restrict money laundering and terrorism financing, a technocratic spat quickly escalated into a diplomatic dispute. Though only one element of sweeping reforms intended to strengthen the European Union’s own anti-money laundering regime, the list not only had the predictable effect of enraging countries included on it—such as Saudi Arabia and three U.S. territories—but also provoked insurmountable criticism from within the EU itself. The list was ultimately rejected by 27 of 28 member states after a fierce lobbying campaign, forcing the European Commission to withdraw it and come up with a new version later this year.

Beyond reputational damage, inclusion on the EU blacklist carried potentially serious implications for many countries, as it would have subjected their citizens and businesses to stricter background checks by European banks and others covered by its anti-money laundering laws. In the latest twist in an already tense relationship between the U.S. and EU over such policy, the U.S. Treasury issued an irate missive in which it attacked the European Commission’s “flawed” methodology and instructed financial institutions to ignore the proposed blacklist altogether. The Treasury Department also accused the commission of undermining established multilateral efforts to develop an existing anti-money laundering blacklist maintained by the Financial Action Task Force, the global anti-money laundering watchdog. The king of Saudi Arabia, meanwhile, expressed his concerns over the effect on trade and investment links with the EU. These misgivings were picked up by member states, led by the United Kingdom, which lobbied against the move internally under pressure from both Washington and Riyadh.

However, supporters of the EU’s anti-money laundering blacklist applauded the European Commission’s bold attempt to finally “name and shame” some of the jurisdictions that habitually facilitate transnational crime and corruption, the global cost of which is estimated to be $2 trillion annually. The Financial Action Task Force, after all, has its shortcomings, not least of which is that it currently only fully blacklists Iran and North Korea, omitting some of the world’s most notorious kleptocracies and tax havens.

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