2019 marked one of the busiest years for regulators. Money laundering fines reached a near record of approximately $10 billion globally. The largest of these fines was handed to UBS, of which were ordered to pay a fine of $5.1 billion for aiding wealthy French individuals evade tax authorities. Standard Chartered followed suit when they were ordered to pay a $1.1 billion by the UK and US regulators for poor money-laundering controls and breaching sanctions.
Regulations are ever evolving - becoming more complex and ambiguous, such that it proves difficult for many compliance departments to adhere to. This does not mitigate banks responsibilities however - if they wish to conduct business, no matter what the regulations are, they must adhere to them. Barclays, RBS, Citigroup, JPMorgan and MUFG have all been fined, (over €1 billion) by the EU for ‘collusion trading’- that is allowing customers to commit fraudulent activities with no oversight. In 2016, Wells Fargo was fined for $185 million for fraudulently opening customers’ accounts without their consent. When Wells Fargo was initially taken to court, they blamed the pressure of regulators and shareholders for their actions. What became quickly evident was that Wells Fargo, among many others, had weak internal compliance processes and next to no internal checks and balances for those abusing power within the firm.
Many a time, we see banks and companies alike being fined for weak governance frameworks- perhaps because its cheaper to get fined than restructure or introduce the relevant infrastructure to enable to stay compliant with existing and new regulations. At the time of Wells Fargo’s fine, the amount did not even equate to 1/20 of the company’s value; and yet we wonder why those that offend, keep doing so? It is because, relatively, its cheap to be non-compliant.
So what is required for a strong governance framework? A key factor is effective board implementation: from the top down, the board need to implement and exercise effective controls in order prevent money laundering and internal abuse within their firm. The lack of correct culture and commitment to tackling the issue is made more prevalent with outdated technology and poor resourcing. Poor resourcing is a major factor in AML failures as compliance officers often do not have the support of enough resources to tackle issues which could range from personnel, systems and data.
Although regulators have attempted to harmonize financial regulation globally, firms are still finding it difficult to be able to comply with all domestic and international regulation. The global standard on tackling money laundering was mainly established up by the FATF but the European Commission recently published its first list of countries that it believes represent a financial crime threat. The list submitted contains an additional 11 jurisdictions including Saudi Arabia and four US territories. The US Treasury were quick to excuse US financial institutions from taking the list into account in their compliance procedures. The statement from the US would have likely created some confusion as the geopolitical issues prevent firms from being compliant across all jurisdictions.
To be able to prevent further AML failures, an independent assessment of governance framework is required. A comprehensive assessment of a firms AML Framework will help identify any deficiencies within the framework. This assessment should be carried out by an independent firm as an objective view is paramount, (that is, considering most fines are a result of bad practice culminating over many years). Implementation of current technology should also play a major part in transaction reporting- notably Standard Chartered were fined for allowing, and not raising business transacted through sanctioned countries. With an up to date transaction monitoring tool, financial institutions would have the ability to assess suspicious transactions in real time, mitigating any time related risks.
With money laundering regulations continuing to evolve, and criminals finding new and more innovative ways to launder illicit funds, financial institutions need to act.
Lysis Group delivers a unique combination of expert consulting, managed services, training, resourcing and an innovations lab in Financial Crime Compliance (FCC) and Client Lifecycle Management (CLM). We provide these services to financial service institutions including wholesale and investment banks, wealth managers, challenger banks and organisations from a range of other regulated industries, plus cryptocurrency related businesses. With this unique combination of services, Lysis creates a significant differentiation from other providers in this market and can be a great asset for those wishing to strengthen, developed and increase their compliance efforts.
By Abdulah Ashur, Junior Consultant at Lysis Group