EU money laundering regulation limit the use of tax havens

Published date18 May 2021
Date18 May 2021
Subject MatterAccounting & finance,Financial risk/company failure,Financial crime
AuthorKalle Johannes Rose
EU money laundering regulation
limit the use of tax havens
Kalle Johannes Rose
CBS LAW, Copenhagen Business School, Frederiksberg, Denmark
Purpose Recent research shows that f‌inancial institutions in the European Union (EU) close branches,
off‌ices and correspondentconnections to jurisdictions with less transparencydue to possible sanctions related
to the increase in EUmoney laundering regulation. This tendency is calledde-risking and the purpose of this
paper is to analyze whether the recent regulatory approachtowards money laundering in the EU limits the
incentiveto have operations in tax havens.
Design/methodology/approach This paper followsa functional approach to law and economics.
Findings The paper f‌inds that recentEU money laundering regulation increase an incentivefor f‌inancial
institutionsto limit any connection to jurisdictions known as tax havens,where transparency is at minimum.
Thereby, it can be discussedwhether the spillover effect from money launderingregulation in to the f‌ight of
tax avoidancecould support further regulatory interference.
Originality/value The recent trend of de-risking in light of money laundering regulation is scarcely
covered by present research. Furthermore, there has been no linking of this de-risking tendency and the
effects orrelation to the use of tax havens/low tax jurisdictions.
Keywords Money laundering, Compliance, Tax avoidance, Financial crime, Tax havens
Paper type Research paper
1. Introduction
In June 2020, the European Banking Authority (hereinafter EBA) issued a call for input to
understand the current driversand impact of de-risking related to money laundering risks at
European Union (EU) level within the f‌inancial sector. The background for the call is that
since the implementation of the fourth and f‌ifth anti-money laundering directives, several
large entities within the f‌inancial sector in Europe have changed their strategy on money
laundering towards avoidance of the risk instead of a mitigation strategy accepting and
handling the risk (EBA, 2020). This change in the paradigm of handling risk within the
f‌inancial sector has led to the problemof de-risking.
De-risking is not a new terminology it has been used for decades within the f‌inancial
sector. However, what is new about the type of de-risking related to money laundering is
that it can have a negative effect on society. When the regulation of anti-money laundering
expanded during the past decade, the expectationwas that f‌inancial institutions should act
as the extension of the authorities, helpingin tracking and exposing illegal transactions and
operations leading to the result of preventing the f‌inancing of criminal activities. Recent
research argues that when f‌inancial entities start to reduce their exposure to money
laundering risk (de-risking) instead of including the risk in their operations, it becomes
harder to unravel potential money-laundering schemes (Rose, 2019.2). However, if the
f‌inancial entities cannot mitigate the risk because of a lack in or access to information, the
eff‌icient strategy will be de-risking from a money laundering perspective because the level
of asymmetrical information serves as a money laundering risk in itself. Financial entities
are therefore forced to strategizetheir way around the de-risking of money laundering risks.
EU money
Journalof Financial Crime
Vol.29 No. 1, 2022
pp. 233-245
© Emerald Publishing Limited
DOI 10.1108/JFC-12-2020-0253
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