EU Banking Authority Flags Money Laundering Risks in Microstate Ties

The Chair of the European Banking Authority (EBA) has issued a stark warning regarding the potential money laundering risks associated with deepening financial relationships with the microstates of Monaco, San Marino, and Andorra.

In a letter directed to the European Commission, the EBA Chair expressed concerns about the historical lack of stringent financial regulations in these jurisdictions, suggesting they could be susceptible to money laundering and other illicit activities.

The EBA, in collaboration with the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA), collectively known as the European Supervisory Authorities, emphasized the dangers of establishing closer ties with these small states. They cautioned that such connections could inadvertently allow illegal money flows and provide easier access for predatory financial firms targeting individuals within the EU.

Monaco, in particular, has come under scrutiny as a potential money laundering haven. Earlier this year, the Council of Europe's anti-money laundering and counter-terrorism financing supervisor, Moneyval, provided a critical evaluation of Monaco's efforts to combat financial crime. Numerous deficiencies were identified in Monaco's anti-money laundering and counter-terrorism financing regime, encompassing areas like Beneficial Ownership, Suspicious Transaction Reports (STRs), staffing, and the criminal justice system.

The warning letter has the potential to disrupt ongoing trade negotiations between the European Union and the microstates, which had been aiming to establish enhanced economic connections allowing access to the EU single market. The European Commission's Vice President, Maroš Šefčovič, has emphasized the significance of these agreements, while concerns have been raised that any financial backdoor into the EU could undermine years of regulatory efforts aimed at strengthening the supervision of financial entities.

The issues raised in the letter have broader implications beyond the financial sector. The proposed agreements involve not only financial services but also seek to address trade obstacles, with the Commission aiming to finalize them by the end of the year. However, failure to reach an agreement before the upcoming European elections could derail these plans.

In response to the EBA's warnings, the government of San Marino expressed astonishment and defended its commitment to transposing European regulations. The European Commission, responsible for addressing the letter, assured that it responds to all letters in a timely manner.

The joint warning from the European supervisory bodies highlights the critical importance of vigilant oversight in financial relationships, especially with jurisdictions historically associated with lax regulations. The move serves as a reminder of the EU's dedication to combatting money laundering and ensuring the integrity of its financial system.

By fLEXI tEAM