Are the world’s financial institutions and their leaders ready to begin defending the front lines in the war against international financial crime and terrorism?
They’d better be.
Governments and their regulatory agencies increasingly expect these institutions to serve as police, to work harder to prevent themselves from being used for money laundering and to prevent breaches of sanctions against countries with poor human rights records and those that support international terrorism. And regulators are punishing institutions when they fall short.
U.S. enforcement authorities, flexing their regulatory muscles, recently imposed fines for sanctions breaches on Lloyds Banking Group ($350 million), Barclays ($298 million) and Standard Chartered ($327 million).
The Department of Justice and the Securities Exchange Commission are using the Bank Secrecy and Foreign Corrupt Practices acts to demand greater due diligence from all parties involved in transactions, holding them responsible for both sins of commission (facilitating money laundering or committing sanctions breaches) and omission (failing to implement sufficiently strong internal controls against either or both).
In December 2012, HSBC agreed to a $1.9 billion settlement to resolve charges that it had failed to monitor more than $670 billion in wire transfers, allowing for money laundering, and had also breached U.S. sanctions against Iran, Libya, Sudan, Burma and Cuba. And in December 2013, RBS was fined $100 for violating sanctions against Iran, Sudan, Burma and Cuba. More recently, the Federal Reserve has held up M&T Bank’s merger with Hudson City Bancorp until M&T beefs up its anti-money laundering controls. In short, governments are making it clear that they will not tolerate what they deem to be reckless conduct by financial institutions or a weak commitment to abiding by international rules.
Governments want senior management – CFOs, chief executive officers, chief compliance officers and chief risk officers, among others – deeply engaged (with compliance experts sitting on boards) and leading the work to build financial crime defenses.