As money-laundering fines continue to dominate the headlines, another lender is facing action for allegedly providing banking services to a company that is reportedly under criminal investigation.
Between January 2017 and December 2018 fines for violations of AML regulation from across the world totalled $5.4bn – a considerable amount for banks to deal with and a cost that will ultimately have to be passed on to their legitimate customers at some point.
As such, preventing money laundering crimes is a highly desirable goal. The first line of defence in pursuing this aim has been conveniently outsourced by governments, law enforcement agencies and regulators to banks, dangling gigantic fines above them as a threat in the event of failure to detect any criminal behaviour. This could be a fundamental mistake, here's why.
Outsourcing is piecemeal
The focus on money laundering intervention and holding financial services firms accountable for deficiencies in their programs has been increasing across the globe (Reference 1). When high-profile scandals reveal a lack of AML checks, a closer examination suggests that the global anti-money processing (AMP) system has serious structural flaws, largely because some regulators are offloading their AML policies to the private sector. These private sector businesses only have a partial view of what is going on, where what is needed is end- to-end visibility of transactions and money flows. In turn, many crime-fighting agencies lack funding to properly analyse the torrent of suspicious-activity reports banks file when they spot potentially suspicious transactions. A study published last year by Ronald Pol, a financial-crime expert, concluded that “blaming banks for not properly, implementing anti-money laundering laws is a convenient fiction”.
How could AML be restructured?
We’re seeing a never-ending game of cat and mouse. As financial institutions develop more sensitive and sophisticated tools to detect money laundering, criminals are devising more elaborate means to foil those systems. Banks are doing what they can to meet the core expectations for a sound AML program: knowing their customers, monitoring their activities, understanding the key risks related to products and clients, and adapting controls appropriately. But as the complexity, global reach and opaqueness of many financial products have increased, the obligations to address these areas has brought additional challenges, which also needs to be supported by law enforcement.
A more sensible approach would be facilitating collaboration between the banks, government agencies and industry infrastructure, led by law enforcement agencies. The goal would be more extensive and quicker data sharing in a controlled manner, leading to more and quicker prosecutions.