Preventing money laundering: A legal study on the effectiveness of supervision in the European Union

The process of concealing illegally obtained proceeds, better known as money laundering, is criminalised virtually all around the world and has been a law enforcement priority since the early 1990s. The international nature of money laundering, combined with estimations on the scope and the distorting effects it may bring about, make it a grave danger to national and international financial markets. At the same time money laundering is considered a danger to society due to its strong interaction with organised drugs and white-collar crime. Over the years a ‘twin-track approach’ has been developed aiming at the prevention of money laundering on the one hand, and punishing the money launderers on the other. Within the preventive anti-money laundering policy, supervision plays a key role. Although money laundering in general has attracted a great deal of attention from the academic world, supervision is an aspect that has remained underexposed in research. This research therefore focuses on the effectiveness of anti-money laundering supervision of banks, real estate agents and accountants in the European Union. Understanding that the EU Directive on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing (‘Third Directive’) has left the design of supervision mostly to the EU Member States, their choices have been influenced by factors such as national politics, culture, the legal system, the economy and finances. As a result of these influences, a patchwork of anti-money laundering supervisory architectures exists in the European Union. This research identifies four supervisory models in the EU: the FIU model, the external model, the internal model and the hybrid model. The FIU model’s main characteristic is that the financial intelligence unit is the national authority with the final responsibility foranti-money laundering supervision. In the external model, supervision is formally exercised by public administrative or Government authorities that have no direct or professional relationship with the supervisees. The guiding principle of the internal model, is that where anti-money laundering supervision can be carried out by internal supervisors, these will be assigned with this task. The hybrid model combines, in different gradations, different elements of the aforementioned models. The models are the foundation for the country selection in this research. The countries that are further studied are the Netherlands, Spain, Sweden and the United Kingdom. They each represent one of the models identified. From the perspective of effective supervision this research thoroughly analyses the legislation, the institutional settings and competences of the anti-money laundering supervisors in the four selected countries, as well as the application of these competences in practice