According to a recent article on a leading AML website in America, financial penalties for AML failings under US legislation rose by 13,100% in 2012 over 2011. Yes, that’s 131 times more paid out in 2012 than in 2011. Of course, a big part of that is the US$1.92 billion paid by HSBC – but not all of it. So what are these institutions getting so wrong?
- “While some banks are filing when they’re supposed to and noting all the characteristics and hallmarks of the suspected crime, smaller institutions used in the crime didn’t file what they should have… [because they] don’t have the AML subject matter expertise.“
- Sanctions breaches – often going back years or even decades
The failure of boards of directors to govern AML departments: “
All of the major orders that have come out have had a lack of effective governance component.”
So we have to ask: are financial penalties working? When the HSBC fine was initially announced, many (including me) asked whether this would have much impact on those who could actually change things within the institution – the board of directors and other senior staff – or whether it would simply come out of a pot of money somewhere and be noticed only by shareholders. And since then, these vague rumblings of discontent have been growing, with both the Guardian and campaigning organisation Global Witness running stories last month about the reliability (or otherwise) of HSBC’s deferred prosecution agreement.
To keep things simple during training, I have always said that there are two types of AML legislation: primary, individual legislation (with the five main money laundering offences), and secondary, institution legislation (with the AML requirements of CDD, reporting, etc.). But maybe it is time to change that. Perhaps we should have primary, institutional offences of money laundering, where the institution is found guilty of (say) concealing or transferring, and then by default the most senior executive serves the prison term on behalf of the institution. Or if that might make scapegoats, you could allow the fourteen years to be shared between a maximum of seven senior staff (who agree to this when they take the job), serving two years each. As Samuel Johnson said, it would concentrate the mind wonderfully.