A European Anti-Money Laundering Supervisory Authority: Perspectives and Challenges

A European Anti-Money Laundering Supervisory Authority: Perspectives and Challenges

Money laundering remains one of the most significant financial crimes worldwide. Criminals generate illicit proceeds that must be concealed and integrated into the legal economy to maintain their value and usability. According to the United Nations Office on Drugs and Crime, money laundering accounts for approximately 2 to 5 percent of global GDP — equating to $800 billion to $2 trillion annually. Combating this crime requires not only depriving criminals of their financial gains but also preventing the concealment and reintegration of illicit funds into legitimate financial systems. This is the core purpose of anti-money laundering (AML) frameworks, which have evolved over decades into complex regimes combining repression and prevention.

Evolution of the Supranational AML Framework

Given money laundering’s cross-border nature, national responses alone have proven insufficient. The Financial Action Task Force (FATF), established in 1989, set early international standards for combating money laundering, issuing 40 Recommendations that have been updated regularly. Within the European Union, AML directives have evolved since 1991, progressively broadening and strengthening preventive measures. Notably, the EU’s AML framework now includes direct obligations for financial institutions to detect and report suspicious activities.

Despite these efforts, recent scandals involving European banks exposed gaps in enforcement and supervisory effectiveness. These shortcomings prompted calls for a more unified and stringent EU-level supervisory framework. Starting in 2019, the European Commission began pushing for an EU anti-money laundering supervisory authority to harmonize AML supervision across member states and address fragmented national enforcement.

The Establishment of the EU Anti-Money Laundering Authority (AMLA)

The new EU AML Authority (AMLA), officially established in 2024 and based in Frankfurt, aims to become a central regulatory body overseeing AML compliance within the EU financial sector. The AMLA’s mandate includes direct supervision of selected high-risk financial entities operating in multiple member states, indirect supervision of other obliged entities, and coordination with Financial Intelligence Units (FIUs) across Europe.

Direct supervision targets entities with significant money laundering risk profiles and cross-border activities. AMLA will conduct risk assessments, enforce compliance through administrative measures and fines, and coordinate supervisory actions via Joint Supervisory Teams composed of both AMLA and national authority representatives.

Indirect supervision involves monitoring national supervisors’ activities related to AML compliance in non-selected entities and non-financial sectors vulnerable to money laundering. AMLA will assess supervisory effectiveness, conduct peer reviews, and mediate where national enforcement proves insufficient.

Coordination with FIUs is vital for efficient information sharing about suspicious transactions. While an EU-level FIU was considered, it was ultimately rejected due to concerns over complexity and cost. Instead, AMLA will support national FIUs through shared IT tools, training programs, joint analyses, and peer reviews to enhance their operational effectiveness.

Bastian Schwind-Wagner_Follow "The establishment of the EU Anti-Money Laundering Authority marks a crucial advancement in unifying Europe's fight against financial crime by enhancing supervisory consistency and coordination across member states. Success will hinge on effective collaboration between this new body and national regulators to ensure robust implementation of AML standards."

Organizational Structure of AMLA

AMLA consists of a General Board, Executive Board, Chairperson, Executive Director, and an Administrative Board of Review. The General Board has two compositions: one representing supervisors of obliged entities and another representing FIUs. The Executive Board manages day-to-day operations and executes the Authority’s functions.

The Administrative Board handles internal reviews of AMLA’s decisions regarding supervision and sanctions. Importantly, AMLA enjoys independence from political influence, aiming for impartial enforcement across member states.

Perspectives on AMLA’s Role and Impact

AMLA represents a significant shift towards centralized EU-wide supervision of AML policies, mirroring developments in banking prudential supervision under the Single Supervisory Mechanism. It was born from recognition of persistent deficiencies in national implementation of AML laws and the need for a coordinated supranational response.

Challenges such as uneven national enforcement, potential leniency toward domestic banks, and poor cooperation among national authorities have hindered effective AML enforcement. The centralized model promises greater impartiality and improved cooperation across jurisdictions.

However, success depends heavily on sufficient resources, political support, and effective collaboration between AMLA and national regulators. Building trust within Joint Supervisory Teams without imposing hierarchical dominance will be crucial to maintaining dialogue with supervised entities while enforcing compliance.

Challenges Ahead for AMLA

AMLA faces several operational challenges. Firstly, it must balance prompt information sharing with data protection and procedural fairness. Geographical distance between the central authority and national bodies could complicate communication but modern digital tools mitigate this risk.

Secondly, integrating diverse national supervisory cultures into a cohesive supervisory framework requires delicate management to avoid friction or duplication. Providing flexibility for national authorities to contribute meaningfully while maintaining consistent standards is essential.

Thirdly, supporting FIUs effectively requires addressing systemic issues such as excessive data volume handling and clear strategic objectives beyond mere information collection.

Ultimately, the EU AMLA must prove that supranational supervision can overcome entrenched weaknesses in national AML regimes while respecting fundamental rights.

Conclusion

While the creation of the EU Anti-Money Laundering Authority is hailed as a transformative development in combating money laundering in Europe, it is not a panacea for all challenges. The Authority’s success will depend on its ability to enforce existing rules rigorously, foster cooperation among national bodies, and leverage technological tools effectively.

The scale and complexity of money laundering demand a supranational approach that complements national efforts. The EU’s move towards centralized AML supervision aligns with broader trends in financial regulation integration. Despite uncertainties ahead, AMLA represents a critical step forward in protecting Europe’s financial system from abuse by criminal enterprises.

Dive deeper

• Research ¦ Katia Villard; “9: A European anti-money laundering supervisory authority: perspectives and challenges”. Elgaronline. A Research Agenda for Financial Law and Regulation, Chapter 9, 21 Jan 2025; ISBN: 9781803929989; doi: 10.4337/9781803929996 ¦ Link