News

If implementing an unprecedented volume of financial and commercial restrictions against Russia posed the greatest challenge for European financial institutions in 2022, in 2023 they felt the added pressure of intensifying efforts by Western governments to enforce them.

2023 was also marked by a continent-wide clampdown on digital payment platforms caught flouting anti-money laundering rules, ongoing turmoil in the cryptocurrency sector, the adoption of sweeping AML reforms in Germany and Britain and intense negotiations over plans to radically reshape the EU’s framework against illicit finance.

Britain’s Financial Conduct Authority began the year with a £7.6 million penalty against Nigeria’s Guaranty Trust Bank for due diligence-related failures and other violations, followed by a £4 million penalty against Qatar’s Al Rayan Bank for similar breaches. More

But the FCA had a quiet year in terms of punitive action despite appointing two new enforcement chiefs, including the former director of intelligence at the National Crime Agency, or NCA. The FCA’s only other AML-related action, a £6.5 million penalty against ADM Investor Services International, concluded in October. More and More

By the second week of January, nearly 13,000 offshore companies, trusts and other corporate vehicles used to acquire real estate in Britain had submitted the names, addresses and other details of their beneficial owners for inclusion on the country’s new Register of Overseas Entities, though half of them did not identify an actual person. More

In May, Javad Marandi, an Iranian-born retail and property magnate, lost his bid to block news outlets from naming him in connection with the NCA’s court-authorized seizure of £5.6 million of assets from the relatives of an Azeri lawmaker and businessman with whom he shared stakes in several offshore companies. More

The FCA fired a shot across the bow of payment services providers, or PSPs, and electronic money institutions, or EMIs, in February, after finding that some of them still lacked effective controls against financial crime. More

The agency fired a second warning shot in July, noting in a report that several PSPs and EMIs had neglected to flag suspicious payments, some of which may have violated sanctions. More

U.K. ministers ordered the FCA that month to review the financial services industry’s policies for closing accounts after news emerged that reputational concerns helped fuel a decision by Coutts Bank, a private lender owned by the NatWest Group, to cut ties with Nigel Farage, a former EU lawmaker and Brexit campaigner who has long courted controversy. More

The FCA did not find evidence of a widespread trend of banks severing ties with certain clients purely for political purposes, but still launched an inquiry into NatWest and Coutts for possibly breaching data-protection standards and rules governing account closures. More and More

In September, the FCA revealed that a review of the transaction-monitoring systems of dozens of financial institutions found that many of them lacked the resources required to adequately screen payments for links to blacklisted parties and had struggled to clear backlogs of alerts on potential violations. More and More

Shereen George, head of sanctions compliance at the U.K. affiliate of BNP Paribas, told moneylaundering.com that as regulators shifted their focus towards attempts to circumvent commercial and financial embargos, banks faced the dual challenge of having to review their compliance programs from top to bottom while coming to grips with new designations.

“It’s been interesting to see the close relationship—maybe closer than ever—between the FCA and OFSI [the U.K. Office of Financial Sanctions Implementation] in terms of their focus on sanctions,” George said. “We see this theme [close cooperation] between OFSI and OFAC [ the U.S. Office of Foreign Assets Control] as well.”

In October, the U.K. Parliament passed the landmark Economic Crime and Corporate Transparency Act, giving Companies House, which administers Britain’s registries of corporate information, power to verify the accuracy of beneficial ownership information, remove false submissions and penalize those responsible for making them. More and More

By that point, the agency had already unveiled plans to hire 250 additional employees to help implement the reforms and enforce the disclosure requirements.  More

European banks meanwhile responded to building pressure to prevent Russia from skirting the West’s embargos by strengthening cooperation between their AML, export-control and financial-crime-investigations functions. More

“The Russia sanctions—given how embedded Russia was in the economy and the real exposure many banks had—meant we had to start collaborating in a much more meaningful way,” said George, the compliance officer based in London. “Historically, compliance departments were very siloed, but I can’t see that model ever coming back.”

In November, the FCA imposed restrictions on Dzing Finance, an EMI in London, after another regulator identified the platform as a major facilitator of fraud. More

The Combating Kleptocracy Cell, a unit tasked by the NCA with combating sanctions evasion and corruption, launched investigations into several blacklisted Russian oligarchs and their associates in 2023, but with little to show by way of prosecutions and asset seizures. More

U.K. officials meanwhile planned to exchange more financial intelligence and other information with foreign counterparts and the local private sector as part of a nationwide strategy to tackle trade-based money laundering. More

Mainland Europe

Moneylaundering.com reported in January that the Financial Action Task Force had blocked proposals to lower the threshold at which jurisdictions fall under deeper scrutiny for gaps in their AML regimes, possibly sparing larger economies from inclusion on the group’s “gray list” of high-risk nations. More

That month, FATF gave Monaco notice for failing to supervise financial institutions and other companies inside the wealthy enclave’s borders for AML purposes and pursue cases against suspected money launderers. More

The group then suspended Russia’s membership, pressured the United Arab Emirates to make the reforms necessary to secure removal from the gray list, and named and shamed Nigeria and South Africa, the two largest economies in sub-Saharan Africa, after finding gaps in their frameworks against illicit finance. More

“The majority of countries listed are still small, low-capacity countries,” said David Lewis, former executive secretary of FATF. “That’s getting more attention and it’s starting to be cast as a Global South issue, which could lead to resentment and questions being asked about the overreach of some countries [influential members of FATF].”

In January, a Swedish court cleared Birgitte Bonnesen, former chief executive of Swedbank, of downplaying the lender’s AML shortcomings in Estonia to investors in 2018 and 2019, bringing an end to one of several high-profile cases linked to a massive, multi-year money laundering scandal in the Baltics. More

FATF warned in February that several jurisdictions had failed to fully implement the group’s recommendations for tackling illicit finance in the digital assets sector. More

The EU sought to buck the trend by adopting the markets in crypto-assets regulation, or MiCA—widely seen as the world’s first comprehensive framework for the sector—while investigators and compliance officers sounded the alarm over the growing adoption of digital assets by transnational money-laundering syndicates. More, More and More

“Despite the urgency from the G20 and others, there’s been very slow adoption of cryptocurrency regulation,” said Lewis, now head of Kroll’s global AML advisory practice. “Given the nature of the risks we’re seeing play out in the industry, that’s been particularly noteworthy.”

In March, European lawmakers advanced plans to safeguard broad access to national databases of beneficial owners after the Court of Justice ruled that making their names and other personal information available to the public violated their right to privacy. More and More

Britain and the U.S. blacklisted several Cypriot financial advisors, a Hungarian lender and other targets suspected of helping Russians evade sanctions, suggesting that efforts by Western nations to close gaps in their embargos against the Kremlin had gathered steam. More, More and More

“The focus on circumvention led us to use AML tools to spot suspicious cases that cannot be detected with the usual sanctions-screening tools,” said Hans-Georg Beyer, chief compliance officer at Commerzbank in Frankfurt, Germany. “One challenge was keeping up with requests for information from various regulators while at the same time focusing on implementing further risk-mitigation measures.”

The embargos turned a spotlight on Russian-owned luxury properties in France, where casinos and other gaming platforms also drew attention from regulators. More and More

Bertrand Salewyn, global head of financial crime compliance at Societe Generale in Paris, told moneylaundering.com that his bank and other European lenders have taken steps to ensure their compliance programs “deliver the expected value on a day-to-day basis.”

“Fraud is a growing area of concern, and fraudsters rely on increasingly sophisticated techniques, sometimes even artificial intelligence,” Salewyn said. “Some fraudsters seem to be fairly familiar with the internal surveillance procedures and try to get around them.”

Fintechs

Lithuanian regulators turned more of their attention towards EMIs and other digital payment platforms amid concerns that their AML programs had not kept pace with the growth of their industry. More and More

Banking-as-a-service, or BaaS, drew particular attention not only in Lithuania, but also in Germany and Britain after regulators found that fintechs offering the arrangement, which functions similarly to a correspondent relationship, frequently failed to assess and monitor the financial crime-related risks posed by their customers’ customers. More

The targets of Bank of Lithuania’s most notable AML-related enforcement actions in 2023 all featured BaaS, with Transactive Systems and PayrNet losing their operating license in June, and Contis, an EMI owned by Solaris, Europe’s leading BaaS provider, triggering a near-record €840,000 fine in November. More, More and More.

“Regulators [across Europe] have woken up to the fact that some of these models bring significant risks,” said Jekaterina Govina, head of regulatory affairs at Amlyze, an anti-financial crime advisory in Vilnius. “We’ve seen increasingly clear expectations from supervisory authorities on how firms should manage these risks.”

The European Banking Authority, as well as regulators in France and Italy, also raised concerns over virtual IBANs, unique account numbers of up to 34 characters in length that can be used to obscure the true locations and identities of parties involved in a transaction. More, More, More and More

“Virtual IBANs are clearly on our radar,” Jo Swyngedouw, head of financial stability and AML supervision at the National Bank of Belgium, told moneylaundering.com. “With other European supervisors, we have quite similar opinions on the way forward, for example by requiring [fintechs] to establish a clear link to a master account.”

AML reform

In May, De Nederlandsche Bank, the central bank of the Netherlands, disclosed plans to give banks more flexibility when deciding how and when to conduct due diligence, and to what level. Five months later, DNB advised financial institutions in guidance to spend more time vetting and monitoring clients most likely to expose them to illicit funds. More and More

“It’s a new approach,” said Willem Schudel, head of financial crime supervision at the central bank. “Our objective is bringing about greater maturity in terms of risk management, where institutions don’t just think about [technical compliance] but actually aim to fulfill the spirit of the law, which also demands the courage to make their own, risk-based decisions.”

FATF added Croatia, Cameroon and Vietnam to the gray list in June. More and More

The following month, the National Bank of Belgium fined the local subsidiary of BNP Paribas a record €15 million after finding serious deficiencies in the lender’s protocols for detecting and reporting suspicious transactions. More

“We now see the first results of our more intrusive supervision towards more risky institutions [of systemic importance], where we try to be very hands-on with remedial actions,” said Swyngedouw, the Belgian regulator. “Setting the tone also pays off in terms of [improving] the behavior of other institutions.”

By July, Germany’s new federal sanctions unit had opened eight investigations into suspected violations of the EU’s financial and commercial restrictions against Russia. More

Swiss officials disclosed plans in August to extend AML requirements to law firms and build a federal beneficial-ownership registry, and in September proposed to establish a new agency to oversee sanctions implementation. More and More

That month, Germany’s Federal Financial Supervisory Authority, also known as BaFin, barred Payone, the country’s largest PSP, from handling funds for high-risk customers. More

Robert Schmuck, director of anti-financial crime compliance at Deloitte Germany, said that BaFin’s focus on fintechs this year, which culminated in October with the imposition of business restrictions on futurum bank AG, shows what lies ahead for the sector.

“It has not yet felt the [weight] of enforcement,” said Schmuck. “Given the heightened focus on fintechs, the enforcement action against futurum bank should serve as a warning sign.”

German officials unveiled plans this year to reinvigorate their country’s beleaguered financial intelligence unit, or FIU, and repair the agency’s relationship with law enforcement. More and More

In September, they proposed to furnish Germany’s planned, new Office for Combating Financial Crime with powers and resources to pursue major money-laundering cases, tackle sanctions violations, review financial intelligence and supervise non-financial companies for AML purposes. More

“The reforms to some extent centralize AML supervision to have more effective oversight and more of a level playing field,” said Beyer, the compliance chief in Frankfurt. “Another component of the reforms is a more risk-based approach by public authorities—and hopefully also financial institutions—to allow us to focus on cases and trends that really matter.”

Dutch lawmakers delayed a vote on landmark AML legislation in September, placing some of the country’s more ambitious reforms in jeopardy. More

FATF that month praised Luxembourg, the top destination for wealth management in Europe, for the jurisdiction’s nearly unrivaled compliance with the group’s technical recommendations, but criticized local authorities for not pursuing cross-border money laundering cases and not cooperating effectively with foreign counterparts. More

Lithuanian officials proposed to strengthen oversight of the digital assets sector in October amid a major influx of cryptocurrency platforms into their country. More and More

Moneylaundering.com reported that month that the total volume of suspicious transaction reports filed for sanctions-related purposes in 18 European nations rose more than tenfold during the first 20 months of Russia’s full-scale invasion of Ukraine. Sanctions also spurred many FIUs in Europe to take on new tasks and reshape their missions. More and More

The Egmont Group of FIUs, a platform through which 170 nations share intelligence on illicit finance, suspended Russia’s membership in September. More

FATF then updated its recommendations to direct countries to give their law-enforcement agencies power to forfeit funds and other property from suspects who have yet to be convicted of a crime. The group also added Bulgaria to the gray list. More

In November, Malta’s Financial Intelligence Analysis Unit called on the country’s top court not to hamstring the agency’s enforcement efforts after local financial institutions and other companies filed an avalanche of legal challenges seeking to overturn AML-related penalties assessed against them. More and More

Anti-corruption campaigners in France tied environmental crimes to an alleged money-laundering scheme for the first time in history, alleging in a complaint that the nation’s three largest banks handled the proceeds of illegal deforestation. More

As 2023 drew to a close, the European Parliament and the EU’s 27 national governments redoubled their efforts to come to an agreement on sweeping AML reforms set in motion more than two years ago, but failed to reach consensus on a new AML directive, 6AMLD, and a final regulation that will harmonize AML rules across the bloc. More

The parties did reach a preliminary deal on the legal framework that will underpin a proposed, bloc-wide AML supervisor slated to launch next year. More

“The devil will be in the details, but overall these are welcome developments because financial crime is a cross-border issue,” said Schudel, the Dutch regulator. “It will allow regulators from different countries to share and build on best practices.”

Contact Koos Couvée at kcouvee@acams.org and Gabriel Vedrenne at gvedrenne@acams.org