Global banks strengthen money laundering controls as fines sting

Bloomberg

Stung by a $1.9 billion fine in 2012 for failure to prevent money laundering, HSBC has been trying to get its house in order. It quintupled the number of employees assigned to spot suspicious activity to 5,000, upgraded its technology and, in 2016, hired Jennifer Calvery, the US Treasury Department’s top anti-money-laundering official, to oversee its efforts — the same woman who helped slap the 2012 fine on the bank.
“If we’re not flagging risks more effectively, it hurts our brand and reputation when these things are discovered by regulators or law enforcement,” Calvery said in an interview at a March anti-money-laundering conference in Florida. “If we have criminals infiltrating our bank, it’s in our interest to find them first. So the goal is to keep making our monitoring more efficient and more effective.”

DOUBLING STAFF
It’s a mindset echoed in conversations with financial-crime executives at four other global banks. All have at least doubled staff levels in the past five years, as fines piled up. Nine big banks paid a total of $20 billion from 2012 through 2015 for having lax controls against money laundering, helping clients evade taxes or violating US sanctions. Most of the settlements came with deferred-prosecution agreements and outside monitors.
Like HSBC, other banks have hired officials from Treasury, law enforcement and regulatory agencies to help with their efforts. Regulators and compliance officers in the US, the UK and the European Union have established new channels for sharing information. And banks are throwing more money at the problem: The 14 largest now spend $2.6 billion a year fighting financial crime, according to the Bank Policy Institute, an industry association.
That doesn’t mean big banks have eradicated money laundering. Executives acknowledge their efforts can only make it harder, not impossible, for criminals to use the financial system and that there’s more to be done.
“Despite all of the money we’re spending — and we’re spending a lot of money to keep criminal money out of our institutions — it’s still getting in every single day, right by all those controls,” said HSBC’s Calvery, referring to the industry’s efforts.
One reason: Adding more crime-fighting personnel doesn’t always mean you get better at catching the criminals. Deutsche Bank AG’s compliance staff in the US flagged money flowing from an Estonia unit of Danske Bank A/S, only to be told to ignore the red flags, according to former and current employees at the bank.
Then there are the suspicious activity reports filed by banks to US authorities, which jumped after 2012 from roughly 60,000 to more than a million the following year. They have been rising since. Yet law enforcement agencies inquire about only 4 percent of those alerts, according to a Bank Policy Institute survey. Only 1 percent of illicit money in the financial system is confiscated, the United Nations estimates.
As part of their clean-up, big banks withdrew from some countries where money-laundering risk was high and dropped correspondent-banking ties with hundreds of lenders. That’s what happened when JPMorgan Chase & Co. cut off Danske’s Estonia unit in 2013. Danske admitted in September that much of the $230 billion that flowed through that unit between 2007 and 2015 was probably suspicious. Deu-tsche Bank continued being a correspondent until 2015.