What’s a firm got to do to earn itself a fine over money laundering?

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Experts estimate that transnational crime accounts for between 2 and 5% of global GDP – that would be about $2 trillion of dark money circulating in the global economy. 

All of this money will have gone through perfectly legal and well-established routes of existing banks, and possibly through your firm’s account with these banks. 

In the age of ‘over-regulation’ and banks throwing significant resources to remain compliant with ever-changing and ever-stringent banking regulations, how do they still play such a central role in money laundering?

In other words, what’s a bank got to do to get themselves fined? 

Since 2012, European banks have paid more than $16 billion in fines tied to money laundering, trade-sanction breaches and ‘weak controls’ (source: Bloomberg). 

 Some of the biggest money laundering scandals in recent years
2012  HSBC  Fined $1.9 billion for handling funds from drug traffickers, terror groups
and US-sanctioned states like Iran.  
2014 BNP Paribas  Fined $9 billion for dealing with Iran and other US-sanctioned states. 
2015 Commerzbank  Fined $1.5 billion for dealing with US-sanctioned states. 
2017  Deutsche Bank  Fined $630 million for failing to prevent money laundering.
2018  ING Bank  Fined $897 million for lax crime prevention.
2018  Danske Bank  The CEO has quit over failures of the Estonian branch to prevent
money laundering. Regulators and law enforcement are still investigating,
with consequences for other banks also like Swedbank

Let’s look in more detail at the behaviours that have featured in some of the most recent money laundering scandals and what they can teach us about protecting an institution from handling dirty money. In each case, we do see how much responsibility lies with financial institutions for protecting our economies from dirty money.

Sanctions lists

When sanctions are imposed against a country, this simply means that a country (or international body made up of many member states) has decided to punish another country by way of limiting its trading/financial relationship. For example, the recent US sanctions against Russia mean that the US has banned American companies in certain industries from exporting their goods to Russia. 

Sanctions are usually extreme of course, and they are part of a range of methods that states and international organisations uphold international standards with (or try to!). 

In AML/CFT terms, we look to FATF to hold states to account on their efforts to fight money laundering and the financing of terrorism. FATF identifies and publishes information on jurisdictions with weak measures to combat ML/TF three times a year, and there is always up-to-date information about this on its website

FATF high-risk and other monitored jurisdictions as at 04/04/2019

Now, to pick an extreme case, BNP Paribas’ fine in 2014 had to do with the bank pleading guilty to conspiring for a period of eight years to violate the International Emergency Economic Powers Act and the Trading with the Enemy Act. It is worth quoting the charges laid against BNP in court as they are quite extraordinary examples of a financial institution knowingly violating its due diligence responsibilities: 

This case is a perfect illustration of the ‘no excuses’ approach set out by international AML standards. If you are seen to be facilitating money laundering, you are held responsible – it is not about intentions or covering up with excuses but about the actions you undertake and their consequences.

The complexity of due diligence

The Deutsche Bank case of illegal money flows through mirror trades between the bank’s Moscow, London and New York offices over a period of four years also demonstrates the complexity of due diligence – more often than not, it is institutional failure rather than a premeditated approach that lead to banks to laundering funds. 

Although the purpose of the mirror trades going through Deutsche was suggestive of illicit conduct, the bank ‘missed numerous opportunities to detect, investigate and stop the scheme due to extensive compliance failures, allowing the scheme to continue for years’ (Reuters) – this was according to the US regulator.

Similarly, the UK regulator found fault with Deutsche Bank ‘failing to maintain adequate anti-money laundering controls between 2012 and 2015, allowing customers to transfer billions from Russia to offshore bank accounts “in a manner that is highly suggestive of financial crime.”’ (Reuters)

The biggest problem with Deutsche Bank’s behaviour in this case? It has to lie here:

Any questions or suspicions were not raised seemingly because no one wanted to spoil the easy income that was flowing via commissions. 

In AML training, a key principle that we keep repeating to staff is: compliance has to come first, at the expense of perceived profit! The simple reason is that the potential harm for the institution – reputational and financial – as well as for our society – in terms of enabling proceeds of crime to circulate and for criminals to get away with crime unhindered – is incomparable.

Culture wars

One of the key ingredients to a robust AML compliance regime is ensuring a culture of compliance throughout the organisation in question. This certainly could have helped ING Bank when it had to recently pay significant fines for errors in its policies to stop financial crime (BBC). 

The case highlighted the fact that the bank did not pay enough attention to its ‘compliance risk management’. Its compliance programme did not have a central driver and focus of responsibility, rather being divided between multiple divisions. The regulator saw this as a ‘business over compliance’ culture, meaning that structurally the bank was effectively ‘culpable’ for money laundering violations. 

So the requirement for a strong compliance role in the organisation is not to be underestimated. In ING’s case, a restructured organisation that recognises the important role of Compliance would not just be a symbolic gesture. It would also mean proper and rigorous training of all staff, drafting appropriate policies that enable staff and management at all levels to confidently report suspicious behaviour and to draw up lessons learnt from past incidences.

As mentioned above, the cost of money laundering to the organisation at hand as well as to society is so great that any costs in properly staffing a Compliance department, holding to its policies and ensuring all staff are appropriately trained and aware of their responsibilities fades in comparison to the risks that enabling money laundering brings with it.


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