European banks prove to be worst offenders for money laundering

For some years, I’ve been close to many of what are now European FinTech unicorns. One of them is a firm based in Dublin, Fenergo. Nice people and, back when I first met them, hungry for business in the regtech and client lifecycle management (CLM) space. Now, they are a leader in that space, valued at over $1 billion last year, to become Ireland’s third tech unicorn (Intercom and Workhuman are the other two).

One of the things Fenergo brightly came up with is to track the all types of financial penalties related to enforcement actions that banks receive for breaking the rules related to AML. The stats for 2021 are interesting, particularly as the total fine levels were half of those of 2020. The figures dropped from $10.6 billion in 2020 to a mere $5.4 billion in 2021. Why? Probably because fines dropped from approximately 711 in 2020 to 264 in 2021, with the average penalty for non-compliance being just over $21.9.

In 2020, most of the actions were related to actions around the world such as 1MDB, the Malaysian collapsed fund. Goldman Sachs received $6.8 billion in fines from multiple regulators for its involvement in 1MDB in 2020.

In 2021, it was much more about Europe. Europe saw big issues in France, the UK and the Netherlands with $2.03 billion, $672 million and $577.4 million of enforcement actions for AML breaches respectively. Interestingly, the largest fine – yet to be enforced – was given to a Swiss-based bank from the Court of Appeals in Paris for a mere $2 billion. As can be seen, most of the $5.4 billion last year emanated from EU regulators, although a big fine ($100m) was placed on the UAE’s Mashreq Bank for illegally processing $4 billion linked to Sudan.

I raise AML regularly as an issue for banks, as they do not enforce the rules as defined by the regulators. In fact, a famous stat I use is that over $2 trillion is laundered through banks every year but only 2% is caught. Why is that? Partly because it is washed through property purchases and partly because the money is being deposited by what seems like a trustworthy identity, nested within many other identities which, at the end of the process, finds the criminal linchpins. The challenge is finding those linchpins, not the money mules who nest within the process and, for banks, they don’t see this as their job.

Should banks be the police of the financial system or governments? I guess that’s why we have this constant to and fro between banks and regulators. Banks are trying to expand their business and revenues, but fall foul of rules because regulators want banks to only deal with bona fide customers, and no those who are hiding bad deeds. It’s a constant battle and it has been going on for years. It won’t go away but at least software, technology, blockchain and more is starting to allow the industry to be far more agile and collaborative in their war against financial crime.

In fact, as a final thought, the general regulations and rules around AML are wildly ineffective at preventing, detecting and prosecuting financial crime. The best research into the topic suggests that existing processes and procedures for preventing financial crime do not work. If it is that broken today, surely technologies like blockchain where records are stored on an immutable ledger, will make a difference? Or technology solutions, such as client lifecycle management, that allows financial institutions to better understand the risks associated with clients and better meet regulatory obligations and proactively prevent financial crime.

Meantime, if you are interested in finding out more about the fines from 2021 and issues banks face, Fenergo have a webinar discussion on Wednesday 23rd February with a panel of experts. Details here.