Regulators imposed bigger fines for anti-money laundering failures in the first half of this year than they did in the whole of 2019, according to new data, as companies repeated their previous mistakes in trying to combat financial crime.
In its latest review of global authorities’ enforcement actions, consultancy Duff & Phelps found that AML fines in the initial six months of 2020 reached a total of $706m, compared with last year’s aggregate of $444m.
But these recent penalties were imposed for exactly the same procedural shortcomings that regulators have been highlighting since 2015: in due diligence on new customers, management of AML measures, monitoring of suspicious activity and ensuring compliance with the rules.
Nick Bayley, head of UK regulatory consulting at Duff & Phelps, said: “We see the same areas being sanctioned again and again . . . Despite the repeated messages in these enforcement cases it’s clear that market participants are continuing to struggle with their obligations.”
Customer due diligence was the most frequently punished failing, with 115 significant cases reported since 2015.
While the review did not pick out any specific examples, one of the highest-profile enforcement actions in recent months involved the London branch of German lender Commerzbank. It was fined £38m in June by the UK’s Financial Conduct Authority for failing to make adequate AML checks over a five-year period. This was the second-largest fine ever imposed by the British regulator for deficiencies in preventing potentially illegal transactions.
Legal experts suggested that financial groups’ persistent failings reflected a lack of resourcing and system upgrades.
“This would be consistent with our experience in practice,” said Anna Bradshaw, a partner at law firm Peters & Peters. “The root cause is always a lack of resources. AML resources are either not sufficient, or they are not allocated efficiently.”
Alison Wilson, a partner at law firm Linklaters, said much enforcement activity related to legacy systems and controls. “Banks are overhauling [them],” she said, “but the number of fines in this area shows the inherent challenge in getting this right.”
However, the Duff & Phelps review found that this year’s AML fines were still lower than the total in 2018, which might reflect a shift in regulatory approach — and compliance — in one major jurisdiction.
“Despite the uptick in AML fine amounts in 2020 we are still seeing fewer massive fines being imposed in the United States,” said Mr Bayley. “It may simply be that the very largest financial institutions may be beginning to get their AML compliance in order, at last.”
In 2018, US authorities handed down 58 per cent of all AML fines imposed around the world. By contrast, this year, they account for only 12 per cent of the global total.
But with AML case numbers not significantly reduced, Duff & Phelps concluded that US regulators must have simply scaled back the “mega-fines” they imposed in previous years, rather than changing their focus.
A further factor in this shift will have been increased enforcement activity elsewhere, said Ms Bradshaw — in particular, the EU. “The increase in non-US fines will also reflect new powers, such as the French deferred prosecution agreements first deployed for AML failings by HSBC Private Bank in 2017 and more recently for AML failings by the Bank of China Limited,” she said.
Heightened European enforcement activity may also have been motivated by a desire to “fend off more damaging US attention”, she added.
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