Author: Matteo Ianni
Committee: Banking, Financial and Insurance Authorities Committee
Date: 26/09/2024
With the appointment of the new European Commission, several key areas of European governance and oversight are expected to evolve. One area of particular importance for future cooperation is that between the European Public Prosecutor (EPPO) and the banking system. As the EU intensifies its efforts to combat financial crime, fraud and the misuse of European funds, the role of the banking sector, both as a potential risk and as a key partner in crime prevention, will come under increasing scrutiny. This article explores how the EPPO and the banking sector could work more closely together in the coming years, particularly in the light of the Commission’s new agenda.
The role of EPPO in the fight against financial crime
Established in 2020, EPPO is the EU’s first independent and decentralised public prosecutor with a mandate to investigate, prosecute and bring to justice crimes against the EU’s financial interests. This includes offences such as fraud involving EU funds, corruption, money laundering and cross-border VAT fraud involving more than €10 million. With jurisdiction in 22 participating Member States, EPPO plays a central role in ensuring that EU funds are protected from criminal activity and that those who commit financial offences are held to account.
The EPPO’s ability to operate transnationally gives it a unique advantage in combating cross-border and multi-jurisdictional crime. This role is expected to become even more important as the EU distributes large amounts of financial resources, such as through the NextGenerationEU recovery package, aimed at revitalising economies after the pandemic.
The critical role of the banking system
The European banking system is the backbone of the EU economy, facilitating the movement of capital, managing financial transactions and providing credit. But it also plays a dual role in enabling and preventing financial crime. Banks are often used by criminals to launder money, hide illicit assets and move funds across borders to avoid detection. At the same time, financial institutions are a critical first line of defence in identifying suspicious activity through mechanisms such as anti-money laundering (AML) procedures and know-your-customer (KYC) regulations.
Banking institutions are required by law to report any suspicious transactions or activities to Financial Intelligence Units (FIUs), which then pass on relevant information to law enforcement agencies. This makes them indispensable partners in the fight against financial crime. Strengthening this partnership with the EPPO could lead to more effective investigations and prosecutions.
Key areas for future cooperation between EPPO and the Banking system
As the new European Commission takes office, it is likely that strengthening the relationship between EPPO and the banking sector will become a strategic priority. Three key areas are likely to shape this future cooperation:
1. Enhanced information exchange and cooperation:
A key challenge in the fight against cross-border financial crime is the timely and secure exchange of information. The EPPO could work closely with European banks to develop mechanisms to facilitate more rapid exchange of information on suspicious transactions, fraud or money laundering. By establishing centralised data-sharing platforms, financial institutions could report suspicious activities directly to the EPPO, enabling it to act quickly. This would significantly improve the ability to detect and investigate cross-border criminal networks using the banking system for illicit purposes.
In addition, the integration of advanced technologies such as artificial intelligence and blockchain could streamline data processing and enhance the EPPO’s ability to identify patterns of criminal behaviour within complex financial transactions. By combining the regulatory expertise of the banking sector with the prosecutorial power of the EPPO, both parties could gain deeper insights into potential fraud schemes and better coordinate their responses.
2. Tighter financial compliance and regulatory standards:
Under the new Commission, we are likely to see a push for a more robust regulatory framework in the financial sector. Enhanced anti-money laundering (AML) rules and stricter know-your-customer (KYC) requirements will be key to aligning banking practices with the EPPO’s crime prevention mandate.
Banks may be expected to adopt more stringent compliance measures to scrutinise high-risk customers, large transfers and opaque corporate structures often used for money laundering. In addition, banks could be required to report more detailed information on the movement of EU funds, especially those linked to major recovery programmes such as NextGenerationEU. This would ensure that financial flows are closely monitored and that illicit transactions are identified and flagged at an early stage.
One possible avenue for reform could be to harmonise AML rules across Member States, ensuring that all European banks operate under the same high standards of financial supervision, regardless of their national jurisdiction. Such harmonisation would reduce regulatory gaps and provide a more consistent framework for the prosecution of cross-border financial crime.
3. Cooperation in cross-border fraud cases:
Given the complexity of modern financial crime, many fraud schemes transcend national borders and involve multiple jurisdictions and financial institutions. The EPPO’s mandate to investigate such transnational crime makes it a natural partner for banks, which often have to deal with the consequences of cross-border fraud.
In cases of large-scale fraud or corruption, the EPPO could work closely with banks to trace the flow of funds, identify the origin and destination of suspicious transfers, and freeze assets before they can be moved or laundered. This would be particularly important in cases involving misappropriation of EU funds, VAT fraud or money laundering activities linked to organised crime groups. Enhanced cooperation could ensure that the banking system plays an active role in not only detecting but also preventing the movement of illicit funds across Europe.
Challenges and considerations for the future
While the potential benefits of enhanced cooperation between the EPPO and the banking sector are clear, several challenges need to be addressed to ensure the success of this cooperation:
- Privacy and data protection:
As banks handle large amounts of sensitive data, any increased sharing of information with law enforcement agencies such as the EPPO must strike a balance between transparency and the protection of individuals’ privacy rights. The General Data Protection Regulation (GDPR) imposes strict requirements on the handling of personal data, and these will need to be fully respected in any new arrangements between the EPPO and financial institutions. This could mean developing secure channels for data exchange, and ensuring that the information shared is relevant and proportionate to the investigation at hand.
- Different national regulatory frameworks:
Although the EPPO operates in several EU Member States, each country has its own financial regulations and banking laws. The success of EPPO’s investigations will depend in part on how easily it can navigate these different legal frameworks. Harmonisation of financial crime legislation across the EU will be crucial to reducing friction and ensuring that banks in different countries cooperate fully with the EPPO.
- Resistance from the banking sector:
The banking sector may be resistant to the additional regulatory burden that could result from closer cooperation with the EPPO. Increased reporting requirements and stricter compliance rules could impose significant operational costs on banks, particularly smaller institutions with limited resources. It will be important for supervisors to strike a balance between strengthening supervision and ensuring that banks remain competitive and efficient.
Conclusion: A way forward for EPPO and the banking system
The new European Commission has the opportunity to promote a more integrated and cooperative approach between EPPO and the European banking sector. By leveraging their respective strengths, both institutions can play a key role in ensuring that the EU’s financial interests are protected against fraud, corruption and money laundering.
As financial crime becomes more sophisticated, the need for a unified cross-border response will only grow. Closer links between the EPPO and the banks could revolutionise the way cross-border financial crime is detected, investigated and prosecuted – ensuring that those who seek to exploit Europe’s financial system are brought to justice.
In the coming years, this synergy could become a cornerstone of Europe’s efforts to combat fraud, ensure financial integrity and build a more resilient and transparent banking system. To achieve these goals, however, all stakeholders must work together to overcome the challenges of data protection, regulatory divergence and operational costs – and to create a stronger and safer financial environment for the European Union.