Anti-Money Laundering in Europe: Banks as Rent-Seekers in the Enhancement of the Third Money Laundering Directive

Abstract

Criminals organising their criminal activities for profit is not something of the last few years, but it hails back to the early Christian world. Nevertheless, the knowledge of the average citizen about organised crime is generally limited to a superficial image of the Sicilian Cosa Nostra or South American Drugs Cartels due to large Hollywood productions that romanticise these criminal constituencies. The true nature of these criminals and their activities has for the most part remained unclear for the public and policy makers. With some cynicism one could argue that policy makers are more or less as blind about organised crime as the average ignorant citizen.In the last two decades, the European Legislature has tried to lever criminal activities by organized crime. This has led to a well elaborated anti-money laundering framework. The approach taken in the contemporary European anti-money laundering framework is threefold. First, the framework comprises a set of first-pillar Community Regulations and Directives. These measures form the backbone of the European ant-money laundering framework. The latest regulatory initiative is the Council of Europe's third Money Laundering Directive (2005/60/EC). Coordinated measures on the Community level were necessary to prevent money launderers from abusing the European Community's frontierless internal market for their criminal activities. Second, this category contains additional legislative measures against money laundering. One of these measures is Regulation 1889/2005 on the Controls of Cash Entering or Leaving the Community. The necessity of this regulation laid in the highly divergent approaches taken by the Member States. Third, this category includes third pillar measures against cross-border money laundering. Third pillar measures mainly require Member States to diminish money laundering by monitoring their banking transactions, accounts and confidentialities.On the contrary to prior anti-money laundering laws, the latest (third) Money Laundering Directive has a central role for banks. The banking sector is involved in the enforcement of the third Money Laundering Directive through the introduction of disclosure requirements (customer due diligence). The aim of the Directive is to involve all the actors that might get in contact with cross-border money laundering transactions. This paper will examine whether banks indeed have the incentive to enforce the Directive. The first presumption is that, albeit the newest Money Laundering Directive is wider (i.e. broader scope and covers more topics and players) than prior regulatory ventures, it does not necessarily bring a more sophisticated regime. The second presumption is that, there is a risk of rent-seeking that prevents private banks from actually maximizing their gatekeeper role. The rent-seeking risk is mainly fostered by the regulatory framework in which banks operate. Both presumptions form the backbone of this paper and will be thoroughly examined.