Hearing: European Commissioner Jourová on anti-money laundering

Last Tuesday November 8, the PANA Committee of Inquiry held a public “Exchange of Views” with Věra Jourová, Commissioner for Justice, Consumers and Gender Equality.

Commissioner Jourová was questioned on the failures of the European Commission to effectively enforce the implementation of the third anti-money laundering directive (AMLD3) in EU Member States. We have written more about the fight for sufficiently robust rules against money-laundering here.

During the hearing and in a written questionnaire,  the Commissioner admitted that member states had not all implemented the rules fully and in an equal manner. This creates loopholes and has impeded the creation of a fair and efficient anti-money laundering regime in the EU.

She also conceded that there is a lack of cooperation between Member States and EU institutions as well as with third countries in this matter. She further acknowledged that the disclosure of real beneficial owners has to be made mandatory and that overall transparency has to increase if the situation is to improve.

Prior to the hearing, the Commission released to PANA an overview of the various problems in member states with transposition. For instance, there were 22 Member states in breach of non-communication; 5 member states were referred to the European Court of Justice and declared in breach (Belgium, Spain, France, Ireland, and Sweden); Germany had an incorrect transposition, among other problems in transposition and implementation.

Ms Jourová recognised those challenges but she fell short of accepting other major flaws of the current system, such as:

  • that the problem not only relates to transposition and insufficient application of EU Directives, but to the deficiencies in the EU regulation itself;
  • that it is not sufficient to have external reports performed (by international bodies such as FATF or Moneyval) without other monitoring mechanisms, without enough resources (resources at the EU Commission amount to around three people, as recognized by Věra Jourová), and without a controlling organism.
  • that lists of non-cooperative jurisdictions, for political and other reasons, often end up without the problematic countries listed on them.

This was also pointed out by GUE/NGL speaker Marina Albiol during the hearing:

Moreover, the 4th AML Directive and the proposed amendments to it contain serious loopholes (see Drilling down to the real owners, Part 1 and 2, by Markus Meinzer and Andres Knobel) that were addressed by several Members of the European Parliament (MEPs) during the hearing. These include:

  • Allowing banks, notaries or lawyers to record (instead of the true beneficial owner) the “natural person(s) who hold the position of senior managing official(s)”. This serves as an escape route for beneficial owners to register nominee managers instead, who will appear in the European Union as the beneficial owners (when they are in fact not the beneficial owners).

On this point the Commissioner replied that it must be applied only as a last resort solution, only if it is not possible to identify the person owning or controlling an entity, then competent authorities can revert to this concrete person as the beneficial owner of this entity.

In the current state of revelations, it is clear that exceptions are already being used in order to hide beneficial ownership.

  • Based on the 4th AML Directive the EU will create interlinked registries of beneficial owners (and this was confirmed by Commissioner Věra Jourová as soon to be ready). However, the publication of a beneficial owners registries by Member States is only advised, not mandatory.
  • Both the FATF and the EU AML Directive consider an ownership beyond 25% to be the threshold to consider someone as a BO. This threshold is too high.

Commissioner Věra Jourová considers that they need to consider a minimum that serves as a standard for all of Europe, so that is how they have arrived to a 25%.

  • Directives do not even cover all trusts nor require disclosure of their information, allegedly on account of opposition from the U.K.

Commissioner Věra Jourová observed that commercial trusts will be registered in public registers. However, she failed to acknowledge any of the structural problems behind trusts.

  • The definition of “passive non-financial entity” triggering the lower 10% participation threshold in the beneficial owner definition seems to be relatively easy to circumvent, so the lower threshold might in fact be rarely applicable.

Finally, Commissioner Věra Jourová replied in the questionnaire stating that “under the new Anti-Money Laundering Directive, currently, Panama (…) do not have strategic deficiencies in their anti-money laundering / terrorism financing legislation that justify to be listed by the Financial Action Task Force (FATF).” In addition, during the hearing she replied that the European Commission cannot duplicate the job of the FATF. However, when FATF declared Panama as ‘fully compliant’ in March 2016, Panama still allowed (then and today) for the use of “Nominative shares”, which even when issued on the name of the shareholder, are not registered in any public office, and thus offer the same degree of anonymity than bearer shares do. During the hearing Commissioner Věra Jourová attempted to shift responsibility to third countries that are not members of the EU, and thus fall outside the jurisdiction of the European Union.

Speaking after the meeting, Spanish GUE/NGL MEP and PANA substitute Albiol said Commissioner Jourová’s performance left a lot to be desired:

“Ms Jourová has been unable to provide clear answers or to clarify the loopholes that currently exist within European legislation. In fact, we’ve even seen an increase in these loopholes that allow different administrations of the EU to indulge in this kind of practice,” said Albiol.

“The fact that 22 out of 28 member states are unable to comply with the current directive’s requirements speaks volumes, let alone the apathy shown by the Commission on this matter.”