The writer is chief executive of the Centre for European Policy Studies in Brussels

It’s estimated that 2-5 per cent of global economic output is laundered annually, with an overall recovery rate of illicit assets at just 1.1 per cent in Europe. Tackling money laundering is a longstanding priority, but one pursued so far with limited success. In the meantime, crime proliferates and citizens see that the rule of law does not work. The European Commission is to announce an anti-money laundering plan this month, but a new approach is needed.

Over the past two decades, AML targets have broadened a lot. They now include not only crime and drug trafficking-related proceeds but tax avoidance, terrorist financing, human trafficking and state-sponsored and corporate bribery. At the same time, technological progress has increased the ways and means to launder money.

The commission’s plan includes legal and regulatory initiatives as well as a single AML agency. However, fundamentally new methods are required to detect money laundering. They should consist of a truly risk-based regulatory framework and enhanced co-operation between financial and non-financial supervisors, financial intelligence units and judicial authorities. To detect suspicious cases, co-operation needs to be developed within the private sector, and between the private and public sectors. Ample use of technology can be made, while respecting data privacy, areas of competence and free competition.

The regulatory side should be addressed first. A thorough cost-benefit analysis of the AML rules thus far could guide the way to a more measured and effective approach. The banking sector is at the forefront of detecting cases and transmitting information to the authorities, at huge cost and threat of multimillion-euro fines and penalties. As much as 95-98 per cent of the suspicious activity detected by the private sector are false positives, which are nonetheless included in thousands of reports sent to financial intelligence units. Very few cases lead to prosecution.

At the supervisory level, states must put their own houses in order first. AML detection in the EU requires the co-operation of more than 100 supervisory entities, financial intelligence units and law enforcement agencies. At the non-financial level, no EU-wide supervision exists, such as for the audit and legal professions.

Another problem lies with financial intelligence units, which examine cash transaction and suspicious activity reports, and send cases of concern to law enforcement authorities. These units are organised, resourced and staffed differently across states. For the EU, greater co-operation among these units is more urgent than creating a new AML supervisory agency. A single template for suspicious transaction reports would be a big step forward.

Financial intelligence units and law enforcement bodies need more co-ordination, better resources and support for training. To be sure, new training techniques are having a significant effect. But it’s hardly credible that governments claim a lack of funding when the fines levied on financial institutions are eye-wateringly large.

Lastly, registries of corporates and ultimate beneficial owners need to be better applied and legal entity identifiers more widely used. These identifiers were instituted after the financial crisis, but their utilisation rate is only 2-7 per cent of all eligible entities in the west.

At this stage, a single AML agency would be akin to the Stockholm-based European Centre for Disease Prevention and Control in the Covid-19 crisis, tasked with controlling chronic and epidemic diseases without having the means to do much about it. A new AML agency would create the expectation that something will be done. But this will require, first of all, more harmonisation of judicial procedures and criminal offences, which EU states have been unwilling to do. We must get regulation right before unifying supervision.