When the European Commission released additions to its list of deficient anti-money laundering (AML) regimes on Wednesday, it ended whatever was left of the veil that separated AML regulation from the tools with which nations exert their foreign-policy influence. Tempting though it must have been for the EU to use AML to tweak the Trump Administration, its list destroys remaining hope that objective law-enforcement actions will ever meaningfully deter kleptocrats, drug kingpins, and all the others able to rest assured that their dirty money can find a home clean enough to suit the EU. Global law enforcement suffers mightily thereby, not to mention all the banks that are now still smaller pawns in an even more political game.
The EU’s live-and-let-live approach to money laundering and tax evasion is well known and most recently on display with regard to hundreds of billions of rubles laundered through Estonia. Malta, Cyprus, Lichtenstein, Jersey, and Latvia – among others – are well-known ports of financial convenience to which the EU has long turned a blind eye. In Malta, it took the death of a journalist after years of political criminality before the ECB sanctioned one Maltese bank for having a bit more money from Azerbaijan than the ECB suddenly thought seemly. Still, little has changed in Malta or elsewhere in the EU.
Money also flows freely through the EU periphery, but the EU looks the other way, especially if a facilitating nation such as Serbia wants to join the bloc. Expand now, ask questions later, if ever, appears to be the EU’s instrumental approach to AML, let alone also to sanctions and tax evasion.
Azerbaijan is still nowhere to be found on the EU’s list nor is Russia even though it is at least as notorious in AML circles as well as a far larger threat to global financial and political integrity. Three U.S. territories – Guam, Samoa, and the Virgin Islands – and the Commonwealth of Puerto Rico were, though identified as miscreants even though neighbors with far better-recognized AML risk profiles such as the Cayman Islands were allowed still to be numbered among the saintly.
Are American territories and Puerto Rico as clean as clean can be? Of course not, but in comparison to those left unmentioned by the EU they exude a snowy glow. All of these jurisdictions are also subject to U.S. AML law which, for all its beneficial-ownership loopholes, is still vigorously enforced by the banking agencies and FinCEN. Again, could U.S. agencies do better? Yes, but in comparison to those in nations left unnamed by the EU, they look pretty impressive.
What now are banks to do? Miffed by the EU’s action, Treasury huffed that U.S. banks need do nothing in response. However, this is little comfort – big U.S. banks have many ties with American territories and Puerto Rico that are integrated into broader global financial transactions subject to the EU’s edict. Foreign banks active in the U.S. and thus protected against these U.S.-targeted sanctions while doing business in the U.S. will nonetheless face potential embarrassment, if not also enforcement, when home-country regulators come calling. At the least, the American territories will find it even harder to access global capital markets, a problem of particular concern in Puerto Rico given its hard climb out of Hurricane Maria’s wake and ongoing efforts to encourage global development and tourism. At worst, legitimate money flows critical to urgent development in all of these U.S. targets will get even scarcer and the citizenry thus even poorer. Not to worry in Malta.