Financial institutions and other entities face severe penalties due to non-compliance with anti-financial crime regulations, which include anti-money laundering and terrorism financing legislations, corruption and bribery laws, and fraud prevention requirements. Despite the efforts of financial institutions to comply with these regulations, billions of dollars in fines are imposed annually due to the ineffectiveness of these programs.
In this article, we’ll take a closer look at some of the most significant penalties that financial institutions and other entities faced in 2022, the factors that led to these penalties and what we can learn from them.
The largest bank in Denmark, Danske Bank, faced penalties due to significant failings and misconduct related to the non-resident portfolio at its Estonian branch between 2007 and 2016.
The bank agreed to pay:
- $2 billion to the US Department of Justice (DoJ)
- $178.6 million to the US Securities and Exchange Commission (SEC)
- DKK 4.749 billion to the Danish Special Crime Unit (SCU)
During that period, about $200 billions of suspicious funds flowed from the non-resident portfolio of customers of the Estonian branch to the US financial system. The client portfolio of the branch involved high-risk customers, many of whom were tied to Russia.
Several factors contributed to the penalties imposed on Danske Bank, including:
- Danske Bank’s deception of US banks with regards to the bank’s Estonian customers and anti-money laundering controls, to gain access to the financial system.
- Failure by Danske Bank to adequately monitor the activities of its Estonian branch, and its high-risk clients.
- Failure of the Danske Bank Estonian branch to implement basic Know Your Customer (KYC) checks for high-risk clients.
- Negligence by the branch to respond appropriately to suspicious customers and their activities.
Lafarge SA, a global building materials manufacturer, faced penalties due to providing material support and resources to terrorist organisations, including ISIS and ANF. The company pleaded guilty and agreed to pay $778 million in fines.
Lafarge SA and its subsidiary, Lafarge Cement Syria S.A (LCS), have been found to have paid $6 million to ISIS and al-Nyshar Front in exchange for the right to operate a cement plant in Syria, from which the company made a total revenue of $70.3 million. The payments were disguised and were made in the form of “taxes” and were structured in a way to provide compensation to the terrorist groups based on the volume of sales, as an incentive to act in LCS’s economic interest.
Credit Suisse involved to an investigation regarding its past cross-border private banking services between 2005 and 2012 with the Parquet National Financier (PNF).
The settlement includes:
- A public interest fine of EUR 65.6 million
- The payment of an additional amount of EUR 57.4 million
- The payment of EUR 115 million to the French State as damages for lost revenue
The overseeing judge of the case found that Credit Suisse bankers sought out potential clients in upscale French restaurants and hotels, rather than conducting business from the bank’s physical offices located in the country. Prosecutors stated that Credit Suisse assisted its clients to void tax on their wealth.
USAA Federal Savings Bank (FSB)
The Financial Crimes Enforcement Network (FinCEN) imposed a $140 million civil penalty against USAA FSB for the wilful violations of the Bank Secrecy Act (BSA).
USAA FSB was found to have violated the minimum requirements of the BSA by failing to implement an adequate AML program and intentionally neglected to accurately and promptly report numerous suspicious transactions to FinCEN, which included customers suspected of engaging in criminal activity. Despite receiving prior notices, USAA FSB repeatedly failed to address its inadequate AML program.
Santander UK Plc faced a penalty of £107.8 million from the Financial Conduct Authority (FCA) for serious and persistent deficiencies in its anti-money laundering (AML) controls. The bank was found to have failed in several key areas including inadequately verifying the professional information provided by its customers, improper monitoring of account turnover, mismanagement of Business Banking accounts, and failing to deal with red flags associated with suspicious activities such as automatic monitoring alerts.
Here are some key takeaways to keep in mind:
- Financial institutions and other entities face severe penalties for non-compliance with anti-financial crime regulations.
- Despite efforts to comply with these rules and regulations, billions of dollars in fines are imposed every year due to the ineffectiveness of compliance programs.
- Even reputable, well-known companies are susceptible to money laundering.
Financial institutions and other entities must take anti-financial crime regulations seriously and implement effective compliance programs to avoid the significant penalties associated with non-compliance. By doing so, they can protect themselves, their clients, and the integrity of the financial system.