Raluca Pruna is head of the Financial Crime unit in the European Commission's Directorate-General for Financial Stability, Financial Services and Capital Markets Union. She talks about the problem of money laundering in Europe and what the EU is doing to try to tackle it.

What exactly is money laundering and terrorism financing?

Money laundering is the process by which criminal proceeds are ‘cleaned’ so that their illicit origin is concealed. Money laundering is usually associated with most types of serious and organised crime that generate huge profits, for example, drug trafficking, trafficking in human beings, fraud, trade in illegal firearms and explosives. The mechanisms to launder money are complex, ranging from self-laundering schemes to increasingly sophisticated, large-scale laundering services which require specialist organisation. Terrorism financing, as the name suggests, involves the provision, collection or receipt of funds with the intention to support acts of terrorism.

What is the scale of the problem in the EU? Is this a big concern?

Money laundering and terrorism financing pose a serious threat to the integrity of the EU economy and financial system. They distort markets and may affect the security of EU citizens. This threat is not only an abstract one: Europol has estimated that around 1% of the EU’s annual Gross Domestic Product is involved in suspect financial activity. More recently, Europol’s 2021 Serious and Organised Crime Threat Assessment (SOCTA) highlighted that the scale and complexity of money laundering activities in the EU have previously been underestimated and serious and organised crime groups in the EU rely heavily on the ability to launder vast amounts of criminal profits. The recent money laundering scandals involving a number of large banks, operating in the EU, with alleged laundered amounts reaching billions of euros, are yet another illustration that the laundering of illicit proceeds is a big concern that we need to address.

What is the EU doing to tackle this problem – both now and more long-term?

Over the last thirty years, the EU has developed its regulatory framework for preventing and combating money laundering and the financing of terrorism. EU rules are far-reaching and go beyond the standards adopted by the Financial Action Task Force, the body responsible for setting the international standards for combating money laundering and terrorism financing. The applicable legislation currently encompasses several instruments -  first the Anti-money Laundering Directive that went through 5 iterations to reflect evolving challenges, the Transfer of Funds Regulation, the Directive on the use of financial information, the Directive on the criminalisation of money laundering and the terrorism Directive. Ensuring the effective implementation of the existing AML/CFT framework in the Member States is key in order to ensure that the EU is properly equipped to address money laundering and terrorism financing. As a testimony of the political priority of the AML/CFT file, the Commission adopted an action plan on a comprehensive EU policy in this field in May 2020. The co-legislators have confirmed this political mandate to the Commission, with 2 rounds of Council conclusions in December 2019 and November 2020 and a Resolution of the EP in July 2020. Before enhancing this policy further, we want to make certain that the rules as they currently stand are effectively enforced. This is why we closely monitor the transposition and implementation of our existing rules, which is a key priority of the Commission’s action plan.

Let me now turn to how we are preparing for the future, with the recently adopted AML package. The ambitious reform that we propose is based on two key elements: harmonised rules and institutional reform. 

First, regarding harmonised rules, until now, the application of AML rules has suffered from a lack of sufficient detail at EU level, which opened the way to divergent transpositions at national level and fragmented supervisory architecture leading to insufficient cooperation and exchange of information, particularly in cross-border cases. As we all know, criminals have been very good at exploiting these weaknesses. Furthermore, the pandemic crisis or the recent terrorist attacks have highlighted that criminals will not lose any opportunity to exploit weak links in our system. And this is why it was urgent to act. We have therefore proposed a first AML Regulation, a new AML Directive and a slight recast of the Transfer of Funds Regulation.

The second cornerstone of the AML package is the institutional reform. The Commission proposed a regulation establishing the new Anti-money Laundering Authority, or as we call it – AMLA. Having an EU-level supervisor will ensure consistent application of the rules across borders. The aim is not to replace national supervisory authorities, but rather work with them to ensure that action is taken where it is needed the most. We propose that AMLA have multiple roles, including as a direct supervisor of a limited number of financial sector entities, an indirect supervisor, and therefore, coordinator and overseer of national supervisors for other entities. Moreover, AMLA should function as a coordinator and provider of support to Financial Intelligence Units (FIUs). AMLA should also have a regulatory role, preparing technical standards and guidelines.

Would you say money laundering will become a bigger challenge in an increasingly digital economy?

It is safe to say that criminals have demonstrated that they are very quick to adapt to and make use of new technologies and developments. Therefore, an increasingly digital economy would undoubtedly present them with new opportunities to launder their illicit profits. A straightforward example is the use of crypto-assets for money laundering and terrorism financing purposes. But the policy response is not shy – all these challenges are taken into account in the proposed reform.

How much impact do you think recent challenges – for instance the pandemic, sanctions against certain non-EU countries, and Brexit – have had in this area?

It is very difficult to come up with an estimate as regards the impact of these challenges. However, the recent increase in criminal activities in the context of the COVID-19 pandemic is a reminder that criminals will exploit all possible avenues to pursue their illicit activities to the detriment of our society. Since June 2020, FIUs have pointed to common challenges related to the COVID-19 pandemic, just to give an example. We therefore have to remain prepared to reflect all these challenges in our legal and institutional framework.

Read more about what the EU is doing to fight financial crime