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INSIGHT: EU’s top regulators warn of money laundering threat in deal for closer economic ties with Monaco, San Marino and Andorra


THE CHAIR of the European Banking Authority (EBA) has warned of the money laundering risks of closer financial relatonships with Monaco, San Marino and Andorra.

In a letter to the European Commission, the EBA chair warned that the trio of tiny states “historically maintained less rigorous financial regulations” and “may be prone to money laundering and other illicit activities.”

The letter says that companies might be tempted to set up in the so-called microstates in a deliberate attempt to benefit from lighter financial standards, which would create “significant risks to consumers” if they sold their wares across the bloc.

Monaco is seen as a money laundering haven which received a scathing assessment of its anti-financial crime (AFC) defences from the Council of Europe earlier this year.

EBA chair José Manuel Campa penned the warning letter along with the chairs of the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA) – the trio forming the European Supervisory Authorities.

The three finance regulators said a deeper relationship with the trio could open the backdoor to illegal money and make it easier for predatory financial firms to target people in the EU.

The correspondence to officials in the Berlaymont in Brussels says plans to forge closer ties with three tiny countries that sit within its borders risks causing significant financial harm to Europe’s consumers.

Media reports today said the dramatic intervention threatens to blow apart trade talks with Andorra, Monaco and San Marino just months before they were due to conclude.

The trio, with a combined population of 150,000 and bordering France, Italy and Spain, are not EU Member States but have been negotiating on greater economic ties which would allow access to the single market.

Only last January the tiny principality of Monaco received a withering evaluation of its ability to fight financial crime from the Council of Europe’s AML/CFT supervisor, Moneyval.

Fault was found in practically every basic tenet required of a robust AML and CFT regime from Beneficial Ownership, to STRs, staffing and the criminal justice system. It was one of the worst assessments of recent times for a country with an advanced banking and financial system.

The agency warned Monaco must “step up its efforts to investigate and prosecute money laundering, to confiscate and recover proceeds of crime as well as to strengthen its supervisory system.”

Monaco – the city state of Monte Carlo – is home to many casinos, banks and some of the world’s wealthiest individuals, having the world’s highest concentration of millionaire and billionaire residents

“Proper scrutiny and safeguards are essential to ensure we don’t let any Trojan horse through our gates,” said Paul Tang, a Dutch MEP for the Socialists & Democrats, who has worked on money laundering and tax legislation.

“When the European watchdogs issue a joint warning, we’d better listen.”

Financial services is only one part of the bigger association agreements with the three countries, intended to remove trade obstacles, that the Commission hoped to conclude by the end of the year.

“Any financial-services backdoor into the EU would undermine years of regulatory efforts to tighten up the supervision of financial firms. Smaller countries inside the EU, such as Cyprus, have come under intense pressure to get tougher. The bloc is also introducing a clampdown on risky cross-border digital sales,” Politico reported.

Under the proposed deal with the trio of states they would have to follow some EU regulations to benefit from free movement of people, goods, services and capital.

Commission Vice President Maroš Šefčovič described the proposal as “an ambitious yet achievable goal and the Commission’s priority.” A failure to reach an agreement before the European election next June risks the plans falling by the wayside.

The San Marino government said it had read the warnings “with astonishment,” according to a spokesperson.

Problems in the past had “nothing to do with the virtuous process undertaken by the three states that have been transposing European regulations for years and that comply with the main mechanisms for fostering tax and financial cooperation between states with an effort equal to that of EU member states.”

A spokesperson for the Commission said it replied to “all letters in due course.”

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