Global fines for failing to prevent money laundering and other financial crime surged more than 50 per cent last year, fuelling warnings that such penalties are not curbing the behaviour and systems flaws that allow criminals to channel money through the global financial system.
Banks and other financial institutions were fined almost $5bn for “anti-money laundering” infractions, breaching sanctions and failings in their “know your customer” systems in 2022, bringing the total since the global financial crisis to almost $55bn, data from compliance firm Fenergo shows.
Fines typically come several years after infractions, so the latest figures do not capture financial institutions caught offside by the glut of sanctions introduced in the wake of Russia’s assault on Ukraine last year.
The 2022 surge marks a rebound from a fall the previous year, raising questions over the effectiveness of a global crackdown on financial crime in the wake of the 2008 crisis, when authorities started issuing large fines in an effort to compel beleaguered banks to do more to protect the financial system from criminal misuse.
“There’s a lot of evidence, particularly in the UK and the US, in terms of recidivism . . . repeat offending by the big firms after they’ve been fined for things,” said Huw McCartney, a professor at the University of Birmingham and co-author of a 2019 study of the impact of post-crisis fines on the Anglo-American banking markets.
McCartney said that in the wake of fines, companies usually put more resources into compliance and monitoring but remediations could be “quite poorly enforced and monitored both within the firm and by the regulators themselves”.
The US has been the most aggressive imposer of penalties, chalking up $37bn of the fines, followed by roughly $11bn in Europe, the Middle East and Africa, and just over $5.1bn in Asia-Pacific, according to the Fenergo data.
Dennis Kelleher, chief executive of Washington-based financial reform advocacy group Better Markets, is also sceptical of the effectiveness of fines in cleaning up the financial system.
“No matter how big the fines are they don’t punish and they don’t deter,” he said, adding that the penalties are “mostly a meaningless cost of doing business. No matter how big they are they are small compared to the revenue and profits of the banks.”
He believes that personal accountability would be more effective. “It doesn’t take a rocket scientist to figure out that the way to punish a banker is to take away his or her money,” he said.
BNP Paribas, UBS, Goldman Sachs, JPMorgan Chase, HSBC and Standard Chartered top the league table for AML and related fines in the post-crisis era.
BNP, UBS, Goldman and JPMorgan declined to comment.
Standard Chartered said it saw “fighting financial crime as an ongoing process of improvement and will continue to invest in our people, systems and processes”. HSBC said it was “deeply committed to combating financial crime and protecting the integrity of the global financial system” and had made “significant investments” to bolster its financial crime and compliance capabilities.
Stuart Graham, London-based banks analyst at Autonomous, said the fines had been “manageable” for the financial industry as a whole.
“For some individual banks, however, most notably Danske or Swedbank, resolving AML/KYC legacy problems has been all-consuming for management teams,” he added. “In addition to the fines, it has involved costly remediation plans and distracted management teams from growing the ordinary business.”
He disputed Kelleher’s contention that fines were seen as a cost of doing business and said investors’ “tolerance of banks’ AML shortcomings is very low nowadays”. Some ESG-focused investors would view errant financial institutions as “uninvestable”.
“Cutting corners on AML/KYC processes just makes no economic sense when the fines, remediation costs and reputational damage can be so high,” he said.
Roger McCormick, who worked on a long-running project on conduct costs at the Bayes Business School, said banks now had a more “genuine desire to do the right thing” but that given the time lag between failings and fines, “the extent to which banks are behaving now” may only be seen in future years.