The EU may lay claim to some of the strongest anti-money laundering rules in the world. They’re just not working properly.

In the twilight of its five-year administration, Jean-Claude Juncker's Commission on Wednesday released a package of reports that reveal how and why the EU failed to prevent a slew of dirty money scandals in recent years.

Brussels came to a simple conclusion: Many banks prioritized profit over customer checks, while national watchdogs were understaffed and distracted with the fallout of the 2008 financial crisis.

“I’m not afraid to say that Europe has one of the strongest money laundering rules in place,” the Commission’s justice chief, Věra Jourová, told reporters after unveiling the reports. “But then these rules need to be vigorously enforced.”

Currently around 1 percent of European wealth is involved in “suspect activity,” she continued, the equivalent of around €160 billion.

National governments decided against giving the European Central Bank any supervisory role.

Addressing the shortfalls will likely need uniform money laundering laws across the bloc and a new EU supervisor to enforce them, Jourová and Commission Vice President Valdis Dombrovskis said.

“We hope this is going to be a priority for the next Commission and there will be a follow-up on this report,” Dombrovskis said.

Their calls and reports may ramp up the pressure on Commission President-elect Ursula von der Leyen, who is due to take office on November 1. So far, the German has made only one reference to money laundering in her political guidelines, saying “we need better supervision and a comprehensive policy to prevent loopholes.”

Money laundering is currently handled at the national level after governments decided against giving the European Central Bank any supervisory role.

Their shortfalls have meant that U.S. authorities have had to step in to mop up the mess. It was the U.S. Treasury, for example, that triggered last year’s collapse of Latvia’s third-largest lender, ABLV Bank, after accusing it of having ties to North Korea’s weapons program.

The ECB's former head of its supervisory arm, Danièle Nouy, later called the U.S. intervention “very embarrassing” — a sentiment shared by Nicolas Véron, senior fellow at Brussels think tank Bruegel.

“These deficiencies point to structural issues,” Véron said, echoing Dombrovskis' and Jourová's calls for a single EU supervisor. “If the EU is to be serious about sovereignty, this is an area where matching the discourse with action is both necessary and feasible.”

Sensitive subject

Money laundering has proved a sensitive subject in the EU after big lenders in the Baltics, Denmark, the Netherlands, Malta and Sweden were caught up in dirty money drama.

Denmark’s largest lender, Danske Bank, for example, revealed last September that over 6,000 “non-resident” clients had funneled some €200 billion through its Estonian branch between 2007 and 2015 — most of which was deemed suspicious.

Wednesday’s report scrutinizes the Danish case, together with other incidents at ABLV, Deutsche Bank, FBME Bank, ING, Nordea, Pilatus Bank, Satabank, Société Générale and Versobank between 2012 and 2018.

Some national EU watchdogs even resorted to finger-pointing over cross-border scandals.

The European Banking Federation in Brussels maintains that the “sector is fully committed in the fight against money laundering and financial crime,” according to Raymond Frenken, the association’s spokesman.

“For this fight to be effective, we need to reduce fragmentation in national approaches while at the same increasing cross-border cooperation in and outside the European Union,” he continued.

That could prove difficult, according to the Commission’s analysis.

The scandals show that interaction between watchdogs “proved to be clearly ineffective and prevented a proper understanding of the gravity of the situation or did not result in joint supervisory action,” one of the reports says.

Some national EU watchdogs even resorted to finger-pointing over cross-border scandals. Denmark and Estonia, for example, blamed each other for the Danske Bank scandal.

EU officials in Brussels privately describe national supervisors as protecting each other from the further embarrassment of past, present and potentially future scandals.

National supervisors also limited any punitive fallout over the Danish scandal.

The board of the EU’s banking regulator, made up of national supervisors, rejected a recommendation by the agency’s staff that accused Tallinn and Copenhagen of failing to do their jobs as supervisors properly.

EU officials in Brussels privately described the incident as proof of national supervisors protecting each other from the further embarrassment of past, present and potentially future scandals.

That sentiment also filtered into Wednesday’s analysis.

Their actions “raise questions for the future, including on how to ensure that supervisors can be held accountable for their actions to ensure financial institutions’ compliance with Union law,” the Commission report says.