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Member States of the European Union must be extremely vigilant in the fight against money laundering since the EU enlargement has meant a greater risk for banks operating in this territory. This conclusion emerges from a study conducted by professor Juan Miguel del Cid Gómez, from the Department of Financial Economics and Accounting at the University of Granada and published by the Real Instituto Elcano.
Many of the Member States "have not historically provided rigorous processes against money laundering, and it is likely for them to need a longer adjustment period", the researcher warns in his work. Moreover, the regulatory framework of some of these countries is less developed, therefore "practical application of the rules against money laundering could be less systematic."
An additional problem is that many of the EU's legal actions assume that rules have been implemented with the same effectiveness in all member countries. "Nevertheless, -Del Cid Gómez warns-, until this becomes a reality, new opportunities can arise for money laundering professionals to enter the financial system in those countries that have not had time to implement or comply with the directive completely, and then to transfer funds to a more accredited financial centre afterwards."
Not all banks are equal
In this respect, some financial institutions may be particularly vulnerable to this risk, the UGR professor points out, "if their internal procedures are based on the assumption that all EU banks are low risk, so that they analyze their transactions with less rigor".
Apart from changes carried out within the legal framework of the EU, enlargement has also produced changes in the real economy, such as an increase in trade among countries. In turn, an increased flow of migration has taken place from recently acceded countries to older ones. The existence of larger volumes of legitimate financial transactions from and to these new countries, which would have previously been considered high-risk, may further complicate the identification of any illicit flow of funds.
Money laundering, also known as assets laundering, is a fundamentally simple concept. Organized crime is intended to generate profits through a series of activities such as corruption, drug trafficking, smuggling, human trafficking, prostitution, bribery and fraud over the Internet, among others. Criminals need to hide the source of these enormous profits and provide them a veneer of legality to avoid confiscation by the authorities. Money laundering is the process through which profits obtained from criminal activity are treated to disguise their illegal origin. Helping, abetting or advising someone to carry out such actions is also considered money laundering.
Given the transnational reach of many criminal activities, "laws state that the crime of money laundering occurs even when the activities that generated the money take place in a country other than that in which they wash their earnings," Del Cid concludes.
Reference: Professor Juan Miguel del Cid Gómez, Department of Financial Economics and Accounting, University of Granada. Tel: (+34) 958 246 227. Email: jmdelcid@ugr.es
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