I was surprised to learn that the European Commission (EC) has recently threatened Luxembourg with daily penalties if it continues in its failure to implement the rules within the EU’s 4th Money Laundering Directive.
It transpires that Luxembourg has chosen to ignore implementing the directive, which it should have fulfilled by June 2018. The Grand Duchy’s excuses include the fact that the Covid-19 pandemic has slowed its processes (which it describes as being of a “particular complexity”). However, this excuse lacks gravitas when considering that the EC commenced these punitive proceedings back in 2016, several years before the pandemic had begun to bite.
The EC has thus asked the European Court of Justice to consider levying a daily fine on Luxembourg for failing in its duties under the 4th Directive to combat money laundering. The importance of ensuring that EU members act in adopting and bringing the 4th Directive into law is brought into stark contrast when you consider that only one percent of criminal profits are ever confiscated in the EU.
The Luxembourg government should hang its head in shame. The Grand Duchy is a notorious location for crooks to launder their gains. Its courts have a reputation for being infamously obstructive and unreceptive to court applications from professionals in our field, with financial institutions doing their bit to protect suspect clients.
However, both the Luxembourg issue and the tiny amount of criminal profit seized illustrate another important facet to this sorry tale. This is another example of EU hypocrisy and failure to get its own house in order before throwing its weight around elsewhere.
I find it astonishing that the EU continues to threaten blacklisting Caribbean islands that facilitate offshore services, such as the British Virgin Islands. The EU is riddled with members cleverly manipulating the bloc’s rules for their own benefit. Thus the EU has proven inept at enforcing its money laundering directive yet can still find the time to threaten small islands and small economies in the Caribbean.
I have previously questioned the EU’s “do as I say, not as I do” approach to anti-money laundering. Luxembourg is simply playing the game, stalling for as long as possible to acquire as much business as possible before the 4th Directive regulations have to become law.
What does this tell us? It tells us that Luxembourg continues to wine and dine those who may have funds that have a dodgy derivation or are hidden from view to protect them from taxation.
In all this, the EU appears to be taking one step forward and two steps back. I support the EU’s new European Public Prosecutor’s Office to fight the proliferation of corruption and resultant money laundering. But the bloc then falls flat on its face when trying to implement the 4th Directive and facing situations like the Luxembourg debacle.
An old saying fits this situation perfectly: “People who live in glass houses should not throw stones.” The EU must get its own house in order before anything else if it wants to more effectively tackle corruption and issues such as tax evasion.
With thanks to Tony McClements, Senior Investigator at Martin Kenney & Co, for his assistance with this post. He served for 33 years with UK police forces and has specialized in Fraud & Financial Investigation since 1998. He is also a lecturer in these subjects at the University of Central Lancashire (UCLAN).