3 October 2024 –
Combating money laundering is a cornerstone of the anti-corruption agenda. While cross-border money laundering cases are on the rise in Europe, the European Union has recently adopted a package to strengthen its legal and institutional framework to crack down on such criminal activities and ensure a coordinated approach to this issue. On June 27, the 13th regional meeting for Europe gathered UNCAC Coalition members in the region to discuss money laundering and how civil society organizations are assuming different roles to prevent, investigate, and counter it.
How can we make the most of the new anti-money laundering framework and EU political cycle?
After the elections to the European Parliament from 6-9 June 2024, a new political cycle has started in the European Union (EU). Roland Papp, Senior Policy Officer for Illicit Financial Flows at Transparency International EU outlined advocacy opportunities for civil society related to the fight against money laundering and corruption.
Roland’s first remark concerned the European Parliament’s political shift to the right. However, he noted that, despite an increase of far-right parties, the majority in the Parliament is pro-European. The trio of key leadership positions -Presidency of the European Commission and European Council and High Representative for Foreign Affairs and Security Policy- will likely balance conservatives, liberals and socialists. Subsequently, the European Commission will be composed and its work plan for the next five years established. What should civil society push for? Anti-corruption organizations can start advocacy now to make sure their demands are included in the Commission’s work plan which will affect 27 EU member states, and candidate countries.
Regarding money laundering, the European Union adopted a package before the elections, on May 30, 2024, to harmonize EU-level rules and push for stronger rules at the national level. It has three main elements. Firstly, a new regional agency (AMLA) with headquarters in Frankfurt will start operations in 2025 and is expected to be fully functional by 2027/28. It will supervise financial institutions on anti-money laundering and coordinate the work of national Financial Intelligence Units (FIUs). Secondly, two regulations with directly applicable rules were adopted. Finally, the 6th Anti-Money Laundering Directive (6th AML Directive) was approved, with minimum standards for FIUs and beneficial ownership registers that member states now have to transpose into their national system.
Although the deadline to transpose the 6th AML Directive is July 2027, the specific parts on access to beneficial ownership registers (BO registers) should be applicable by July 2026. This opens the door to country-level advocacy over the next two years, for maximum transparency of the registers.
Experience and future avenues to address transnational illicit financial flows in Ireland
As Head of Policy and Research at Transparency International Ireland (TI Ireland), Alexander Chance exposed Ireland’s anti-money laundering and asset recovery framework, and outlined his organization’s priorities. Ireland has a comprehensive AML and asset recovery framework: the country was one of the earliest adopters of non-conviction based civil forfeiture and uses a multi-agency approach to pursue and clawback proceeds of criminal activity since the mid-1990s. However, there is a significant gap between law enforcement against domestic criminal finances, and the loopholes and lack of traction when it comes to pursuing the proceeds of overseas corruption and criminality laundered through the Irish financial system.
Financial services are a main component of Ireland’s economy and, within these, the investment funds industry. According to Alexander, Ireland is currently the third-largest domicile for investment fund assets in the world, and the second-largest and fastest-growing in Europe.
In a country that has gone, in a few decades, from being one of poorest to one of the wealthiest in Europe, evidence shows that some structures in the Irish financial system have major loopholes in terms of their illicit use. In particular, Limited Partnerships, Special Purpose Vehicles (SPVs), and trusts.
Limited partnerships are common in anglophone jurisdictions. They limit the liability of some investors to the sum invested and do not require them to register beneficial owners, file accounts, or even to base the limited partnership in the country. They are used for legitimate purposes, but also for a variety of illicit purposes from tax evasion to organized crime. When the UK government increased regulations around Scottish limited partnerships in 2017, the registration of Irish limited partnerships went up by over 7 fold.
Special Purpose Vehicles (SPVs) are companies set for a specific narrow activity and used in asset securitization or property deals, or to isolate parent company assets. They are lightly regulated, don’t typically have obligations to register beneficial ownership, and might be tax neutral. Investigative journalism and academic work have shown that SPVs are being used for shadow banking and round-tripping to various jurisdictions, including to and from Russia.
Finally, there are also concerns about light supervision of trusts.
After the 2022 ruling of the Court of Justice of the European Union (CJEU) that shut down public access to beneficial ownership registries, Ireland closed access for journalists and civil society to the three Irish BO registers (for companies, trusts, and certain financial vehicles). Additionally, personal data protection is being argued to cut back public access to previously widely available data in other sectors. For instance, names of registered aircraft owners were recently taken offline. Other problems include a loose company registration regime with little verification of data, limited law enforcement capacity and a fragmented framework around the supervision of non-financial professionals and bodies (the enablers), and underreporting of potential money laundering cases. The Irish FIU receives an insignificant number of suspicious transaction reports from the investment funds industry, although these funds account for over a third of obliged entities.
Against this background, one of TI Ireland’s strategic priorities is ending the use of Ireland as a safe haven for the world’s “dirty money” and is weighing in different approaches. Firstly, to emphasize the link to key social issues such as lack of housing availability, as vulture funds buy up housing stock hidden behind special purpose vehicles. Secondly, to highlight regulatory failures and the systemic threat to the financial system of not addressing them. Thirdly, to look at institutional shortcomings through a national security lens. Finally, TI Ireland works to raise awareness internationally about the country’s position as safe haven, as their main advocacy objective is to get Irish political leaders to engage on these issues. To this end, connecting with civil society partners from other countries is of utmost importance.
How can civil society track international financial flows?
In the last presentation, Vanja Ćalović, Executive Director of MANS, explained her organization’s efforts to contribute to corruption-related investigations in Montenegro, a small country of only 650,000 inhabitants and candidate to accessing the EU, in which corruption, nepotism and cronyism are widespread.
Vanja emphasized that anti-money laundering legislation in Montenegro is up to date, but not sufficiently implemented. For years, courts did not prosecute money laundering -there have reportedly only been two cases where someone was convicted of money laundering. A reason for this lack of enforcement is systemic corruption and state capture, since the same political structure remained in power for over three decades. Although the 2020 parliamentary election brought a change of government, Montenegro is an attractive location for foreign corrupt elites seeking to launder illicit profits by engaging in corruption with local actors, and Russian capital has permeated the country, especially in coastal areas.
To pursue investigative work that may lead to revealing money laundering and related crimes, MANS has developed partnerships with networks such as the Organized Crime and Corruption Reporting Project (OCCRP) and the International Consortium of Investigative Journalists (ICIJ). As starting point, the organization submits information requests under the Freedom of Information Law, and consults business registers and land records. In a small country, large investments and real estate can be easily monitored. The data collected are then cross-referenced with asset declarations of prominent politicians and responses to information requests. This type of work has allowed MANS to highlight the potential illicit enrichment of some politicians whose real estate or investments do not correspond to their lawful income, and to cooperate with authorities.
Following the track of “dirty money”, MANS has also monitored large construction projects abroad, including in Russia and Azerbaijan. The impossibility of accessing information on ownership of companies in the British Virgin Islands was a major obstacle, but large data leaks like the Pandora Papers represented an opportunity and showed the way for civil society to cooperate with journalists across the globe. Vanja stressed that research work does not always give immediate results. However, information collected may allow legal claims to be filed before evidence is destroyed, and the documents collected may be valuable to authorities or other organizations at a later stage. One example of this is the criminal complaint against a former President of Parliament. MANS was able to provide the courts with unquestionable evidence and documentation previously obtained through information requests.
These investigations, even more so when they affect organized crime structures, are challenging and risky. Vanja highlighted that one way to address the risks and provide protection against potential attacks is to publish the results. Another way is to rely on international cooperation, so that external governments and other interested parties react when they see organizations under threat. Therefore, it is crucial to establish connections with civil society and allied authorities in other countries when identifying transnational criminal links.
The subsequent debate with participants in the meeting revolved around the contribution of civil society against money laundering. On one hand, advocacy on key related topics such as beneficial ownership transparency or to urge for enhanced due diligence and controls over professional enablers of corruption is essential. On the other hand, organizations choosing to pursue investigations that expose corrupt schemes used to hide ownership of illicit funds and to file legal complaints can benefit from publicly available datasets, access to information laws, and collaboration with journalists and international partners. Depending on the context, whistleblowers help to overcome some of the persisting banking secrecy and legal barriers to accessing information.
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If you are a civil society activist from Europe and would like to become involved, please contact our Regional Coordinator Ana Revuelta Alonso at email hidden; JavaScript is required.