EU States Object to Dirty-Money List After U.S. Outrage

(Bloomberg) -- Plans for a European Union money-laundering blacklist stalled after objections by all but one of the bloc’s 28 governments, lowering the risk of additional regulatory hurdles for banks doing business with Saudi Arabia and several U.S. territories.

The list of jurisdictions with inadequate controls on illicit transactions and terrorism financing was proposed by the European Commission, the EU’s executive arm, and quickly criticized by the U.S. Treasury as the result of a flawed process. Officials representing the bloc’s national governments met in Brussels on Friday and agreed to ask the commission to revise the procedure of drafting the blacklist, people familiar with the matter said.

Member states will demand a “transparent and credible process" and a “listing that meets our high standards and thereby further strengthens" measures to combat laundering and terrorist financing, according to a draft joint statement under deliberation, which was seen by Bloomberg. The communique will be released next week, once all 28 governments agree on the exact wording.

The rejection by EU governments means the commission will have to rethink its approach. A spokeswoman for the Brussels-based executive denied that the bloc’s member states and affected governments weren’t consulted on the methodology and the drafting on the list, while declining to comment on the rejection.

Due Diligence

While the current list may not survive, EU governments have said they’re determined to stamp out dirty money after a series of scandals. Several of the bloc’s biggest banks, including Danske Bank A/S, Deutsche Bank AG and Swedbank AB, have been implicated in money-laundering allegations, raising doubts about the quality of supervision and enforcement across the continent.

Under the commission’s proposal, banks and other financial institutions would be required to apply increased due diligence checks on operations involving customers from 23 “high-risk third countries,” including American Samoa, Guam, the U.S. Virgin Islands, Puerto Rico, Saudi Arabia and Panama, to better identify any suspicious money flows.

This was the commission’s first list based on its own methodology, targeting more countries than those named by the Financial Action Task Force, a Paris-based global watchdog. A country was added if “strategic deficiencies” in its anti-money-laundering framework were identified.

“The rejection of the governments is a farce at the expense of security,” EU lawmaker Sven Giegold said in a statement. “France and the U.K. want to remove Saudi Arabia and other countries from the list. Spain is protecting Panama. The United States is exerting massive pressure because four U.S. jurisdictions,” he said.

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