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“It’s a systemic problem in Europe, where you have a single
market across borders,” says Véron. “You have a very strange
mix of incentives for national supervisors that you don’t have
in normal countries that have their own borders for financial
purposes.” The Wirecard case illustrates the failure of supervi-
sory enforcement of corporate reporting
requirements and payment services, he
says, suggesting that an EU-wide super-
visor would be a better approach than the
current system of delegating supervision.
After the 2001 Enron scandal in the
US, Véron notes, Congress passed the
Sarbanes-Oxley Act and established the
Public Company Accounting Oversight
Board to supervise auditors and pun-
ish firms that conduct improper audits.
Europe lacks such a central authority.
A bigger problem may be the rules
themselves and how they are applied by
supervisors, says Hans-Helmut Kotz,
economist at the Minda de Gunzburg
Center for European Studies at Harvard University.
Accounting rules currently have “so much leeway that
it is fiendishly difficult” to track the activities of the same
company across borders. The US and Europe haven’t
even been able to resolve the differences between the
Generally Accepted Accounting Principles of the US
and the International Financial Reporting Standards
used in the EU and many other jurisdictions.
“How can we guarantee rules are implemented in
a completely disinterested way and the authorities are
shielded from industry influence?” Kotz says. “I would
be in favor of supervision being Europeanized.”
There’s precedent for such a shift. In 2014, the
European Central Bank (ECB) took over direct super-
vision of the EU’s 120 largest banks following the col-
lapse of a number of institutions as a result of the 2008
financial crisis, which had required huge taxpayer bail-
outs. European states adopted the Single Supervisory
Mechanism in 2013, giving the ECB prudential oversight of
about 80% of eurozone banking assets; by all accounts, ECB
oversight has been a success.PERVERSE INCENTIVES
Money laundering is another controversial area where EU
supervision looks to become more centralized. While the
EU issued anti-money laundering directive rules to prevent
money laundering through European banks, the disclosure last
year that Russian oligarchs had laundered about €200 billion
through a tiny Estonian branch of Denmark’s Danske Bank
created an outcry that forced the resignations of senior bankexecutives in Denmark and Sweden.
In a similar case, one of the biggest financial institutions
in the Baltic states, Latvia’s ABLV Bank, was closed down in
2018 after it was accused of laundering at least €50 million for
Russian, Ukrainian, and other foreign clients. The fact that the
case was not discovered in Europe but by
the US Justice Department added to the
EU’s embarrassment. Last November, the
finance ministers of six eurozone coun-
tries demanded the creation of an EU
anti-money laundering (AML) supervisor;
the European Commission (EC) made a
proposal in May.
“They have created a coordination
problem by creating a single finan-
cial market without a single author-
ity for money laundering, which could
lead to perverse incentives,” says Joshua
Kirschenbaum, formerly acting direc-
tor of the Office of Special Measures at
the US Treasury’s Financial Crimes
Enforcement Network, overseeing
international money laundering
investigations, now at the German
Marshall Fund. “Certain countries
have developed large sectors cater-
ing to nonresident deposits with
a lot of very high-risk institutions
and haven’t had the wherewithal to
bring it to heel.”
Just how imperfect local imple-
mentation of EU financial rules
can be was demonstrated again in
July, when the European Court of
Justice fined Ireland €2 million and
Romania €3 million for failing to
adopt the EU’s full AML rules in
their own legislation. The EC also
referred Austria, Belgium and the
Netherlands to the court for failing to implement various AML
rules on gambling activity, in Austria’s case; exchanges of docu-
ments and information in the case of Belgium; and making pub-
lic the beneficial ownership of companies in the Netherlands.
“We have robust EU rules in place, but they must be applied
consistently and efficiently,” said EC Executive Vice President
Valdis Dombrovskis in a July 2 statement commenting on the
commission’s action on the three countries. Nonetheless, while
the EC said it was now ready to recommend an EU supervi-
sor for money laundering, it still prefers “harmonizing” money
laundering rules across the bloc to writing a regulation that
would have the force of law EU-wide. ■Kotz, Harvard: Accounting rules currently
have so much leeway that it is fiendishly
difficult to track the activities of the same
company across borders.Véron, Peterson Institute: It’s a
systemic problem in Europe, where
you have a single market across
borders.September 2020 | Global Finance | 21SECTION NAME
STORY NAME TK | By Name Tktktktk