“EU and its international partners need to be tough on economic crime”

“We should remind ourselves that illicit money comes from awful crimes, including human trafficking, illicit drug trade and many other crimes, so it is in the interest of all of us to make sure we stop this activity and the criminal acts behind it,” states Mairead McGuinness in an interview with BIZweek. The EU Commissioner in charge of Financial Services, Financial Stability and Capital Markets Union kindly agreed to answer our questions in the context of attending a workshop of the Organisation of African, Caribbean and Pacific States which was hosted in Mauritius.”

Could you please explain the context of your visit in Mauritius?

I am happy to be here in Mauritius to engage with the local authorities on a range of issues, including our shared efforts to address issues that impact our financial system negatively, including work on Anti-money laundering in particular.

Other issues of common interest, such as the economy and the current geopolitical challenges with the Russian military aggression in Ukraine and its global consequences, are also on our agenda.

Money laundering in the financial system hurts us all. It lets criminals conceal the illegal origins of their dirty money, allowing them to profit from crime. At the same time, scandals involving financial institutions undermine trust in the financial system and the public administrations that regulate it.

In the European Union, we have been working hard to establish a framework of rules and practices to close loopholes. But financial crime is a global issue that cannot be solved in isolation. It is also essential to progress on the fight against financial crime at international level.

I am grateful to the OACPS (Organisation of African, Caribbean and Pacific States) members for inviting me to this forum on tax good governance and anti-money-laundering and combating the financing of terrorism (AML/CFT). This is a great opportunity to foster cooperation on important issues that affect the economies of many OACPS members. We share a belief in the importance of global cooperation and multilateralism. We look forward to continuous cooperation with OACPS countries in this important endeavour. This meeting is especially important as we return to face-to-face meetings following the Covid pandemic.

What is your assessment of Mauritius since it has been delisted from the FATF grey list and the EU’s list of high-risk third countries?

I welcome the progress achieved by Mauritius in its AML/CFT regime over the last years. This is fully recognised internationally as Mauritius has been delisted from the grey list of the FATF, and subsequently by the EU since the beginning of last year. Progress made by Mauritius has been quick, with a delisting in less than two years demonstrating a strong political commitment, as well as the full engagement of both the competent authorities and the private stakeholders such as financial institutions, accountants and lawyers.

The EU is fully supportive of this effort on AML/CFT and provided technical assistance through the EU Global Facility, with the support of the EU delegation here in Mauritius. More than 20 actions took place, including trainings and workshops on technical topics such as the beneficiary ownership requirements or special investigative measures in AML/CFT Investigations. Such cooperation is key, as financial crime and dirty money do not stop at borders. It is in our common interest to have strong AML/CFT regimes preserving the integrity of the financial markets. Protecting the financial system from money laundering is a day to day effort. I know that Mauritius is fully committed to keeping a strong focus on threats to the financial system, conscious as we all are that new risks are emerging continuously, such as those related to crypto assets currently.

Mauritius is playing a leading role in this region in sharing its experience of reforms and exchanging best practices with countries in the region, such as within the FATF regional body for the Eastern and Southern Africa AML Group (ESAMLAAG) comprising 19 countries, and even beyond. In that regards, I thank Mauritius for hosting the OACPS workshop, allowing us all to have very fruitful exchanges.

What would it take to stay out of the lists mentioned above?

The listing is a technical and objective process based on clear requirements. The FATF follows a clear and transparent methodology for assessing technical compliance with the FATF recommendations and effectiveness of AML/CFT systems.

Similarly, for the EU list of high-risk third countries, the Commission implemented a legal requirement stemming from the EU AML legislation, which set clear assessment criteria. The Commission also published a methodology in order to ensure a robust, fair and transparent process. The listing is based on a comprehensive fact-based analysis, considering a variety of credible information sources, notably reports from international organizations active in the AML/CFT field, such as the FATF, of which the Commission is a founding member.

Are there new criteria in the pipeline for assessment exercises?

As regards the developments of the EU policy towards third countries, the Commission proposed in July 2021 to apply measures proportionate to the risks posed by the country. This includes a categorisation of the third jurisdictions into high-risk third countries and countries with compliance weaknesses in their AML/CFT regime, similar to what the FATF does. Beyond countries identified by the FATF, the EU would continue to autonomously identify a country that poses a threat to the EU’s financial system.

Finally, the AML Authority, which we are proposing in our legislation, will support obliged entities in identifying external risks and relevant mitigating measures. We are currently engaging on these proposals with the EU legislators; the European Parliament and Council.

It is said that illicit financing often finds its way during periods of global economic uncertainties. What are the main challenges to combatting money laundering and terrorism financing today?  Can we have an overview of illicit financial flows with the advent of new technologies, including fintech and virtual money?

Let me start with your question on illicit financing: the challenging economic period we are navigating certainly creates opportunities to engage in illicit financing. But I would see it the other way: this is also a moment where the EU and its international partners need to be tough on economic crime, to make sure that all economic actors can trust our financial system.

We should remind ourselves that illicit money comes from awful crimes, including human trafficking, illicit drug trade and many other crimes, so it is in the interest of all of us to make sure we stop this activity and the criminal acts behind it.

We certainly also face new challenges and areas of risk. For instance, new technologies are at the core of an innovative and more modern financial system. But there is also a risk that criminals who want to move illicit funds make unlawful use of these new technological developments. Several law enforcement authorities have indicated that ML/TF risks from crypto-assets have increased further since 2019, linked to the growth of the crypto-asset market. Credit institutions, investment firms, electronic money issuers and payment institutions are the sectors most exposed to these risks.

The constant evolution of technology is positive and allows for innovation in the financial system. However, technology can be used by bad actors and criminals, so we all need to continuously adapt our legal frameworks in order to efficiently address existing risks and prevent new ones from emerging. The Commission proposed an ambitious package in 2021 to take the AML framework forward, and we have already reached an agreement with EU legislators (the European Parliament and the Council) to extend the scope of our Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) rules.

This will allow us to improve safe access to digital services and to stop crypto-currencies from being used to launder money as part of the recast of the Transfer of Funds regulation and the Market in Crypto Assets regulation (MiCA). Other parts of the package are still in negotiation and we hope to reach an agreement in the coming months. These proposals have been designed to find the right balance between addressing these threats and complying with international standards while not creating excessive regulatory burden on the industry. On the contrary, these proposals will help the EU crypto-asset industry develop in a positive direction, as it will benefit from an updated, harmonised legal framework across the EU.

What are the main weaknesses in the African and Indian Ocean regions?

In terms of AML/CFT, we do not assess the weakness at a regional level, but at a country level. This is why the EU has developed a facility providing tailor-made and demand-driven support to countries through the EU Global Facility on AML/CFT.

As such, we are engaging bilaterally with each country that is requesting technical assistance to address the country-specific shortcomings through the EU AML Global Facility.