Are money laundering fines a good enough deterrent?
In this blog, we look at some of the fines imposed on financial institutions for active involvement in money laundering and whether such fines act as an effective deterrent to those thinking of engaging in money laundering activity. We also explore the fines levied for not employing effective anti-money laundering systems and processes.
During the period January to April 2019, the UK imposed the equivalent of $1.23 billion in fines for issues related to money laundering. This was a major increase given that up to 2019, the UK had only imposed the equivalent of $0.44 billion in fines. In addition, in the first half of 2020, regulators levied fines for money laundering failures totalling more than the fines levied in the whole of 2019.
Which financial institutions have been impacted in recent years?
In 2015, the Financial Conduct Authority (FCA) fined Barclays £72m for failing to minimise the risk that it may be used to facilitate financial crime. This action related directly to a £1.88 billion transaction involving a number of ultra-high net worth clients.
Then 2019 saw the FCA issue the second largest financial penalty for poor AML controls to Standard Chartered Bank totalling £102,163,200. Its US equivalent fined the bank a whopping $1.1bn for the same oversight.
Finally, in 2020, the FCA fined Commerzbank £38m (reduced from £54m for co-operating) for AML failures including an “out of control” system for checking clients. The bank had neglected to implement controls over a period of five years, even though it had been given three warnings by the regulator. It is open to question as to whether the fine should have been reduced in light of Commerzbank’s clear ignorance of the continued warnings.
It’s evident from the above cases that fines don’t seem to be working in dealing with money laundering issues within the financial sector. So, could it be time for operating sanctions to be imposed alongside these fines?
Out-of-control money laundering activity
It is worth noting what some commentators say about the issues raised by the FinCEN files. For example, Tax Research UK said in an article that “Money laundering is rampant, and the government is refusing to put in place the measures to tackle it”. A number of responses to this article are also worthy of note as they appear to be from people who have an insight into the sector:
- It’s clear from a string of reports over recent years, that the City’s business model and indeed its USP is its unique ability to launder funny money around the world, including through its offshore satellites. Therefore, it’s no accident that none of these simple reforms have been instituted. After all, we are very proud of the City - the twinkling jewel at the heart of our otherwise feeble economy.
- I ceased believing Britain was capable of genuine reform years ago. The Financial Crash and its consequences were the final nail in the coffin of that expectation (although held without much conviction). We are overrun by our own pirates. For years there was an official FCA website (or whomsoever the regulator then was – it changed at some point; they rarely last long, or amount to much as “regulators”; and who cared who they were or what they did?). This website listed both the fines and the scale of the individual fines regularly doled out to the financial sector for their abject post-crash failures. Huge figures for fines were set (sometimes I added together tens or hundreds of millions in fines, covering a very short period), often for “mis-selling” (an esoteric and mystifying concept that was never adequately explained) but it was all ‘small beer’ in financial terms in any case; and I recall expert opinion termed such costs not as penalties, but as merely “the cost of doing business”. This is the real nature of Britain.
A recent industry piece written by Stephen Platt, the author of “Criminal Capital”, asks an interesting question, “is it time to consider whether the real story is not a failure by offshore centres or financial institutions and their MLROs to tackle money laundering, but a failure of statecraft manifested in double standards imposed by large economies unwilling to practice what they preach and a SARs regime that is under-resourced, unworkable and leaky?”
It will be interesting to see what comes of such a question…
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