Justice Commissioner questioned on money-laundering risk list

At a hearing of the European Parliament’s Panama Papers inquiry committee on 3 July 2017, Justice Commissioner Věra Jourová, with responsibility for the process of revising and implementing the EU’s Fourth Anti-Money Laundering Directive, was questioned by GUE/NGL MEP Matt Carthy.

The discussion focuses on the European Commission’s proposed blacklist for high-risk third countries under the Anti Money Laundering Directive (AMLD), which ensures that blacklisted jurisdictions are then subject to tougher customer due diligence measures in their banks.

(Note that the AMLD list is separate from the Commission’s proposed blacklist of non-cooperative tax jurisdictions, which hasn’t been released yet but which is due at the end of this year.)

DG JUST (The department for Justice within the Commission) has responsibility for implementing and enforcing the AMLD. As part of the revision of the AMLD, the Commission has proposed a Delegated Act with a list of high-risk third countries for enhanced due diligence.

In the Commission’s proposed blacklist from July 2016 there were 11 countries: Afghanistan, Bosnia, Guyana, Iraq, Laos, Syria, Uganda, Vanuatu, Yemen, North Korea and Iran. MEPs voted to object to the Delegated Act and it was rejected in plenary. The Commission then ‘revised’ its list – by removing Guyana and including Ethiopia. In May this year this revised list was again rejected by MEPs.

The Commission bases its list on the assessment of the Financial Action Task Force (FATF), one of the international standard-setting bodies on AML.

Key problems with the FATF assessment process

Some of the key problems with the FATF assessment process and its resulting list are:

– Not all countries have been reviewed by the FATF yet. As of February 2017, the FATF has reviewed over 80 countries and publicly identified 61 of them. Of these 61, 50 have since made the necessary reforms to address their AML weaknesses and have been removed, with only 11 remaining on the list.

– It is not entirely clear how the FATF selects who will be reviewed and in what order.

– It seems as though providing a written high-level commitment to address deficiencies, jointly preparing an action plan with the FATF, and taking some limited actions to indicate compliance  is sufficient to get yourself taken off the list.

– The result is that none of the major offshore financial centres are included on the FATF list of high-risk third countries for money-laundering. Not one of the 21 jurisdictions named in the Panama Papers are on the list.

Commission’s ‘ new methodology’ to develop list of risky countries

After MEPs rejected the FATF-based list the second time, Commissioner Jourová sent a roadmap in June to MEPs on the Economic and Justice committees, finally making a commitment that the Commission would develop a new methodology to identify the list.

But her letter and attached roadmap make it clear that:

– In the meantime the Commission wants to keep using the FATF list; and

– The Commission will continue to use the FATF/international fora list as a major element of their methodology in the long run.

In this letter, Commissioner Jourová said: “I therefore propose a staged approach, focusing on priority third countries first. Priority countries will be chosen on the basis of their financial importance for the Union and their exposure to risks of money laundering and terrorist financing. The list of non-cooperative tax jurisdictions to be issued by the Commission at the end of this year will also be taken into account.”

The inclusion of the Commission’s tax list is also a problem because that will very likely be based on the OECD tax blacklist, which as of last week has just one jurisdiction on it – Trinidad and Tobago.

 The key point is that the Commission needs to develop its own independent assessment that recognises the biases and limitations of the FATF and the OECD, but it clearly doesn’t have the political will or the actual resources to do this.

Addressing the Commissioner on behalf of GUE/NGL, Irish MEP Matt Carthy said: “The process of developing the list of high-risk third countries under the AMLD has shown a number of serious problems with the Commission’s approach. There has been an obvious lack of political will on the part of the Commission – to either acknowledge the limitations of the FATF assessment process or to acknowledge the opinion of the overwhelming majority of MEPs.”

Carthy welcomed the fact that the Commission is now proposing to develop a new methodology for selecting high-risk third countries, but added that “it should not have taken us a year to get to this point”

“I want to raise two of the key problems that many of the MEPs in our group has with the letter and roadmap the Commission has circulated,” Carthy continued.

“The first is the indication that you intend to come forward with a new Delegated Act on the basis of the FATF assessment that can be used between now and the end of 2018, and the suggestion that there is no alternative to this. Many MEPs will be dissatisfied with this approach, especially after the Commission’s failure to move on this issue over the past year until now.

“The second problem we have with the proposal is that it appears to continue to rely heavily on the assessments of international fora, mainly the FATF and the OECD. What we’re saying, and what we’ve been saying for the past year, is that the assessment process of these bodies have serious limitations, to the point where not a single jurisdiction that was named in the Panama Papers is on the FATF list and as of last week there is just one jurisdiction on the OECD’s tax list.

“We are saying very clearly that we want the Commission to take into account broader sources than just the conservative assessments of the international fora. There is a wealth of academic work that indicates risks and deficiencies much more comprehensively than FATF or the OECD.

“To what extent will the Commission use sources other than the international fora, what sort of sources and criteria are you considering, and what resources do you need to carry out this assessment process?” he asked.

Commissioner Věra Jourová replied that she welcomed the Parliament’s commitment to ensure the Commission’s justice department had sufficient resources to deal with tackling money-laundering and tax evasion but stated that there was no intention of increasing these resources to the point where the Commission could carry out its own assessment process independent of the FATF and OECD, nor would the Commission engage in assessment processes such as on-site country visits in developing its risk-list.