A new era of financial crime investigations in the EU: highlights from our webinar
Cross-border arrests, seizures of bank accounts and shares and fast convictions are some of the European Public Prosecutor’s Office (EPPO) achievements during its first year of operations. The EPPO is the ‘newly’ independent entity in the EU system in charge of strengthening the fight against financial crime by investigating and prosecuting crimes that affect the EU budget.
The EPPO’s engagement with EU Member States and EU Agencies has managed to provide a system of cooperation that serves as a formula for success. However, challenges remain, such as the allocation of more budget to strengthen its operations or how collaboration will be carried out with Non-Member States that are, nevertheless, involved in ongoing investigations.
The main focus of our webinar was to put in perspective what the EPPO means for financial institutions. In this sense, we highlighted that financial institutions are key players in the fight against financial crime and, if policies and procedures are correctly implemented, they can serve as essential contributors in financial crime prevention.
But what does this really mean?
For starters, the EPPO’s competence is of mandatory character. This means that whenever a criminal conduct meets its jurisdictional thresholds (for example, Cross-border VAT fraud involving total damages of at least EUR 10 million) it will be investigated. This does not mean that crimes below this threshold go unpunished: they must be investigated and prosecuted by national competent authority. But in this sense, an obligation is to be highlighted: anyone can report a crime to the EPPO, including legal entities. Therefore financial institutions have the responsibility to report suspicious transactions to the local Financial Intelligence Units or directly to the EPPO. Not doing so, in certain jurisdictions, is itself a crime.
In order to ensure compliance with financial crime’s laws and regulations, financial institutions need to understand what they can do and how to successfully position themselves as key players in this field. To this end, Simon Consulting provides you with a series of tips:
TIP 1: UPDATE COMPLIANCE FRAMEWORKS
It is recommended to conduct a revision of the company’s compliance framework by revising the policies and procedures in place and determine whether it is up to date or if gaps persist. Note that the EPPO needs to be considered as a relevant stakeholder, which implies a follow up to its cases, regulations and guidelines.
Think of the following questions:
- is my company taking into account measures taken by the EPPO?
- Does the company have procedures in place for asset freezes and seizures?
- Are there procedures in place for providing information to relevant authorities?
Moreover, analyze whether the financial institution’s business rules have systems in place to understand and detect money flows coming from the EU’s budget. This shall be equally compliant with the 4th AML Directive.
TIP 2: EXPAND THE SCOPE OF THE SIRA REPORT
The Systematic Integrity Risk Analysis (SIRA) is a regulatory requirement for Dutch financial institutions or foreign branches active in the Netherlands. In other countries this can be known as financial crime risk assessment, ML/FT risk assessment or simply compliance risk assessment.
In this sense, we recommend including fraud against the EU’s budget as a specific risk in your company’s periodic risk assessments to make it more comprehensive with the existing developments.
TIP 3: CONDUCT REGULATORY UPDATES
Financial institutions should be aware of the most recent regulatory updates. Not only case law, but also laws and regulations, relevant publications and guidelines. This needs to be approached from a double perspective: from EU entities such as the Parliament, the Commission, the Council, etc.; but also from national entities, particularly the FIUs. Note that the FIUs, besides playing an important role in fighting against financial crime, are likely to conclude further cooperation agreements with the EPPO.
We recommend that these regulatory updates are carried out on a weekly basis and, additionally, this will be in line with the ISO 37301 standard in relation to knowledge of compliance obligations with existent relevant laws.
TIP 4: SPECIAL CONTROL ON OPERATIONS THAT INVOLVE THE EPPO’S JURISDICTION THRESHOLD
It is essential to put in place special controls for money flows belonging to the EU’s budget. Moreover, bear in mind that the PIF Directive sets minimum standards that can be expanded by national authorities, making it an obligation to comply with local laws and regulations that call for adequate policies that guarantee the integrity of business operations.
TIP 5: THIRD PARTY DUE DILIGENCE
Financial institutions need to perform third party due diligence before entering into agreements, not only with regards to clients but also with business partners. To this end, it is recommended that the institution makes sure that potential business partners also have updated compliance frameworks and that they are up-to-date with tax obligations, especially if they are located in different EU Member States.
TIP 6: PRUDENTIAL SUPERVISION
Financial institutions as gatekeepers of the financial sector must actively combat criminality by making their systems inaccessible to criminals. It is mandatory, for a financial institution with its registered office in the Netherlands, to organize its business operations in such a way that it guarantees the controlled and ethical conduct of its business. The sound management of business operations, particularly in relation to financial crime, will strengthen your financial institution in fighting financial crime.
Are you unsure about how to implement these tips in your compliance frameworks, or would you like more information about the topic? Please feel free to contact us at Simon Consulting, where one of our consultants will gladly give you personalized compliance advice.
1. Directive (EU) 2015/849 on preventing the use of the financial system for money laundering or terrorist financing (4th AML Directive) | Directive (EU) 2018/843 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing
2. EPPO and Italian Financial Intelligence Unit signed an agreement to strengthen cooperation 8 June 2022.https://www.eppo.europa.eu/en/news/eppo-and-italian-financial-intelligence-unit-strengthen-cooperation
3. See, for example, the Dutch Financial Supervision Act (Wet op het financieel toezicht, arts. 3:10 and 3:17)