Brexit Risks in the Fight Against Money Laundering

Cooperation probably isn’t the first word that springs to mind when reflecting on the Brexit negotiation process to date. Yet it is cooperation between EU member states which continues to play an important role in our joint fight against financial crime. So how much of a risk is the UK’s departure from the EU with regards to anti-money laundering (AML) – particularly in the event of a no-deal Brexit?

As you are no doubt aware, the United Kingdom of Great Britain and Northern Ireland’s somewhat heated and often troublesome love affair with the European Union is finally set to come an end on Thursday, 31 October “Come what may.” Sounds like a cue for a song if you ask me.

Now, I appreciate that this isn’t ‘new’ news, granted, however we have been down this road before. On 29 March and again on 12 April to be precise. Furthermore, it is conceivable, although perhaps somewhat unlikely, that a further extension will be granted to facilitate a workable agreement between these two high profile co-respondents, but let’s not allow the facts or common sense to get in the way of a good story. At the time of writing, our bookmaking friends will have us believe that an extension is, in fact, the most likely outcome1.

As a technology company that provides know your customer (KYC) screening and compliance solutions for organisations, what, I hear you ask, is RDC’s interest in Brexit? Well, the answer is quite simple. Brexit will affect all of us, whether we like it or not.

In a joint report2 issued by the European Supervisory Authority (ESA), which includes the European Securities and Markets Authority (ESMA), the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA), they speak about “working to minimise the adverse impact” of the UK leaving the EU in anti-money laundering (AML) terms, although they do make the point that the outcome is still unknown at present. Gaps already exist in the framework and they would appear to be set to get bigger.

What hasn’t happened, for a variety of good reasons, many of them justified, is the establishment of a single European Financial Information Unit (FIU) or equivalent. Instead, the EU has strongly encouraged member states to cooperate in terms of combatting financial crime, especially where it crosses international borders.

Furthermore, the joint report talks about risks associated with the resources of Competent Authorities (CAs) and their oversight, as well as firm’s resources. RDC have commented in the past about EU legislation, specifically the 6th Anti-Money Laundering Directive (6AMLD), which not only calls for better coordination of efforts between member states but also that “adequate resources” should be made available to fight financial crime. This doesn’t bode well for those of us in the industry.

You may have read recently about the National Crime Agency (NCA) charging 13 men over the UK’s biggest ever drugs racket3 and this involved not only the UK authorities but those from the Netherlands as well.

Now, I’m not suggesting that come 1 November such partnerships will cease altogether but I suspect that it will be slightly harder to enforce joint operations if no common, overseeing authority exists. Let’s face it, many of the member states have failed to live up to their regulatory requirements whilst the UK are still within the EU so it’s difficult to see how this will improve once they finally leave.

A no-deal Brexit would only exacerbate the situation since the exchange of information between national anti-money laundering bodies would be disrupted even further. It is also impossible to say if, or in what capacity, the UK would adopt current EU legislation being passed on AML controls, and how closely similar frameworks would carry across in a post-Brexit future.

While the future might still be uncertain, it is fair to say that any situation that puts the UK in a less collaborative position with the rest of the EU will pose risks to anti-money laundering controls which are founded on cooperation. We should hope that financial crime prevention remains high on the agenda for all relevant bodies and institutions, regardless of the scenario that plays out.