13 May 2020

EU Observer: Why the EU anti-money laundering list is so short

The EU, last week, told a black-and-white tale of 20 sinful states who posed a money-laundering threat to Europe's law-abiding single market. But the real story of the EU and money laundering is more complicated.

And the EU's new dirty-money blacklist revealed more by its omissions than by its inclusions.

The 20 countries that posed a "high risk" of injecting criminal or terrorist funds into the single market were named and shamed by the European Commission on 7 May.

They included Afghanistan, a leading heroin exporter.

The EU also stigmatised Panama, exposed in the 2016 Panama Papers leak as a global clearing house for shady money.

The other 18 sinners were: the Bahamas, Barbados, Botswana, Cambodia, Ghana, Iraq, Jamaica, Mauritius, Mongolia, Myanmar/Burma, Nicaragua, Pakistan, Syria, Trinidad and Tobago, Uganda, Vanuatu, Yemen, and Zimbabwe.

It meant EU banks ought to do enhanced due diligence on transactions.

The listing automatically excluded the 27 EU states themselves, plus Iceland, Liechtenstein, and Norway, under the EU law that governed the process.

The blacklist was based on a purely technical, 59-page commission methodology, officials said.

It was also based on the decisions and methodology of the Financial Action Task Force (FATF), an intergovernmental anti-money laundering body in Paris.

But the claim the EU lists, which are updated each year, are purely forensic was given the lie by last year's political exclusion of Saudi Arabia.

The commission, last January, said the petro-kingdom had met criteria for listing, on the basis of a detailed and confidential document.

But EU states, a few weeks later, vetoed the move anyway, to protect the West's geopolitical ally.

They also vetoed the commission's listing of four protectorates of Europe's principal ally on the world stage, the US - American Samoa, Guam, Puerto Rico, and the US Virgin Islands.

And the story of political interference goes back further.

The commission, in 2018, said 54 countries merited a risk assessment.

That long list included China and Chinese protectorates Hong Kong and Macau, Russia, and the US itself, where the state of Delaware is a fiscal paradise.

It named UK protectorates, such as the British Virgin Islands (BVI) and the Cayman Islands, as well as some of the EU's closest friends: Andorra, Monaco, San Marino, and Switzerland.

It also named EU oil supplier Azerbaijan and US ally Singapore.

None of these were ever listed in the end, the EU commission says, for methodological reasons.

But all of them are known as money-laundering hotspots by experts in the field.

"Almost all the recent EU money-laundering scandals come from Russia or the former Soviet region," Panicos Demetriades, the former president of the Central Bank of Cyprus, who now teaches economics at Leicester University in the UK, told EUobserver.

The City of London in the UK and Liechtenstein were also hotspots, Michel Koutouzis, a former FATF inspector, who writes books on money laundering, said.

"If the objective is to clean up the financial system, the [EU] list is weak and unhelpful," Bill Browder, the CEO of UK hedge fund Hermitage Capital, who has investigated Russian money laundering ever since mobsters raided his firm in Moscow in 2008, also said.

"It's more significant who's not on the [EU] list than who's on it," Browder said.

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