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Andorra’s Financial Ties with EU Under Scrutiny Amid Money Laundering Concerns

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The European Banking Authority (EBA) has sounded the alarm over potential money laundering risks posed by closer financial ties between the European Union and Andorra, Monaco, and San Marino. The warning comes as these microstates are negotiating deeper economic relationships with the EU.

Historical Financial Regulation Laxity

According to EBA chair José Manuel Campa, these countries “historically maintained less rigorous financial regulations” and may be prone to money laundering and other illicit activities. Companies might set up in these states to take advantage of lighter financial standards, creating significant risks to consumers if they sold their products across the bloc.

Monaco’s Anti-Financial Crime Defenses Criticized

Monaco has faced criticism for its anti-financial crime defenses, having received a scathing assessment from the Council of Europe earlier this year. The tiny principality was found to be lacking in almost every aspect of its money laundering and terrorist financing prevention regime.

European Financial Regulators Echo Warning

The EBA chair’s warning was echoed by other European financial regulators, including the chairs of the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA). They cautioned that a deeper relationship with these countries could open the backdoor to illegal money and make it easier for predatory financial firms to target EU consumers.

Impact on Trade Talks

The warning has sparked concerns about the potential impact on trade talks between the EU and Andorra, Monaco, and San Marino. The trio is not an EU member state but has been negotiating greater economic ties that would grant access to the single market. However, the European Commission has emphasized the importance of proper scrutiny and safeguards to ensure that these agreements do not compromise the EU’s financial regulations.

MEPs Express Concerns

The controversy has also raised concerns among MEPs, with Paul Tang, a Dutch MEP for the Socialists & Democrats, calling for “proper scrutiny” to prevent any Trojan horse from entering the EU’s financial system. He warned that the European watchdogs’ joint warning should be taken seriously.

Proposed Deal and Uncertainty

The proposed deal with Andorra, Monaco, and San Marino would require them to follow some EU regulations in exchange for free movement of people, goods, services, and capital. However, failure to reach an agreement before the upcoming European election risks the plans being scrapped.

Government Response

In response to the warnings, a spokesperson for the San Marino government expressed astonishment, stating that past problems had nothing to do with their efforts to transpose European regulations and comply with tax and financial cooperation mechanisms.

Fate of Proposed Deal Remains Uncertain

The Commission has promised to respond to all letters in due course. The fate of the proposed deal remains uncertain, but the EBA’s warning underscores the importance of ensuring that any agreement does not compromise the EU’s financial regulations and risk undermining years of regulatory efforts.