Regulators’ “fast and furious” AML fines don’t tell the whole compliance story

While banks and financial institutions pay more and more fines for regulatory failings, those seeking to evaluate their effectiveness need to look behind the numbers.

Fines are just part of the “toolkit” for clamping down on money laundering

Rachel Woolley, global director of Financial Crime at Fenergo, tells FinTech Futures that penalties have come “fast and furious” over the past few years.

Fenergo data shows that fines against financial institutions through July 2020 have reached $5.6 billion.

The charges account for anti-money laundering (AML), know your customer (KYC), and general compliance failings.

2020 has seen fines for Commerzbank (£37.5 million), SEB ($107 million), and Signet Bank (€1 million). Westpac and HSBC have disclosed AML issues in Australia.

Between 1 January and 31 December 2019, a record-breaking 58 AML fines were issued to banks. Encompass data shows US regulators issued the highest number of penalties at 25, totalling $2.29 billion.

Woolley says those questioning the effectiveness of penalties should look at the goings on behind the headline figures.

“The reputational damage that can come from a fine is significant. In some cases, it can wipe out shareholder value. We’ve seen this in action with the Nordic banking scandal of the last couple of years.”

Danske Bank’s €200 billion money laundering scandal in Estonia saw 10 former employees detained. German authorities raided Deutsche Bank’s headquarters over suspicions connected to Danske.

Mirrors

Woolley says that while EU and APAC regulators relied on smaller fines in the past, they are starting to copy the hefty penalties levied by US bodies.

“They’re coming around to the idea that what may actually work best on financial institutions are these significant penalties.

“Smaller penalties haven’t really had an impact on [banks’] overall approach, many of them simply factor these into their operating costs to some degree.”

Fines are just one part of the equation, too. “There is a whole toolkit of enforcement actions that can be taken. This includes senior accountability regimes, really looking at the individual to be held account for any issues.”

Centralisation

The Baltic and Nordic AML scandals set off a series of discussions in Brussels over the potential of a centralised EU body.

A single rule book would make things “an awful lot easier”

European Commission (EC) vice president Valdis Dombrovskis spoke to the Financial Times in December 2018. He said that that due to numerous scandals across the bloc, stronger controls could be necessary.

In a speech that same month, Dombrovskis stated that “recent cases in the banking sector [showed banks] are not always supervised and enforced with the same high-quality standards”.

European Central Bank (ECB) board member Benoît Cœuré also recommended the creation of a “coordinated approach to money laundering” in the bloc.

The responsibility for the transposition of EU AML laws remains at the national level. Despite this, Woolley says that a single rule book would make things “an awful lot easier”.

“We still have quite a large number of member states that haven’t transposed the EU’s fifth AML directive,” she says.

“The question asked is ‘was this down to COVID-19?’, and the answer is ‘not necessarily’.”

“The transition deadline was in January and we’re still seeing a quite a number of members that haven’t met it.”