Compliance fines and high costs make April’s headlines

Julian Dixon

April 30th, 2020

The news this month has again been dominated by the traumatic impact Covid-19 is having on our lives.

Right now, it can be difficult to imagine a newsfeed free from coronavirus. If you didn't see it already, I shared my thoughts on the impact, challenges and future of Covid-19 from an AML perspective in a blog recently.

If anything, it should remind us that the fight against money laundering continues.

This month the headline news is that Westpac warned stakeholders it is preparing to receive the biggest corporate fine in Australian history. Other noteworthy news items include reports which reveal the true cost of compliance, and emerging trends.

Money laundering scandal set to cost Westpac more than $1 billion

After allegedly violating AML and counter-terrorism laws some 23 million times in just five years, Australia’s second biggest bank, Westpac, has revealed it is expecting a fine in the region of $1.03 billion. If the bank’s calculations are correct, it would be the largest fine in Australian corporate history.

An investigation by AUSTRAC, the body in Australia responsible for preventing financial crime is currently ongoing.

In November 2019 AUSTRAC announced Westpac failed to monitor and prevent suspicious activity from customers identified by the regulator as posing “known child exploitation risks”.

The significant shortcomings “stemmed from Westpac’s failure to properly resource the AML/CTF function, to invest in appropriate IT systems and automated solutions, and to remediate known compliance issues in a timely manner... Westpac adopted an ad hoc approach to ML/TF risk management and compliance.”

New report reveals UK has the highest financial crime compliance costs – and labour is the single biggest driver

Lexis Nexis’ new True Cost of Financial Crime Compliance Global Report has revealed the financial crime compliance costs in the UK and EU are 3-4 times higher for mid/large financial institutions than those in North America and APAC. The UK has the highest costs globally, at $49.5bn per annum.

Labour is the single biggest driver of high compliance costs, accounting globally for an average 57% of expenditure. Due diligence in Europe also takes longer and this increases the overall cost of financial crime compliance.

The study found financial crime compliance challenges negatively impact productivity and employee retention. 67% of compliance decision makers are concerned with job satisfaction within their workforce.

New Fenergo report reveals latest global trends in financial institution fines and enforcement actions

Fenergo has published its latest analysis of global regulatory fines for AML, KYC, sanctions, MiFID and data privacy violations against financial institutions.

The report finds that between October 2018 and December 2019, regulators across the US, Europe, APAC and the Middle East have levied over USD $10 billion in financial penalties against financial institutions for AML/KYC and sanctions-related violations. This figure rises to USD$36 billion when you extend the timeframe back to 2008.

Notably, since October 2018 fines relating to AML, KYC and sanctions violations have increased by 160% with a lack of appropriate compliance systems and infrastructures.

US regulators also continue to come down hard on foreign financial institutions, fining European institutions 10 times more in USD$ than those in the US.

In 2019, 12 of the world’s top 50 banks were fined for non-compliance with AML, KYC and sanctions violations. It was a tier one Swiss bank that received the biggest single fine – an eyewatering $5.1bn for AML breaches by the French Criminal Court. The fine exceeds the bank’s 2018 net profit of $4.9bn by 4%.

The rise in sanctions fines in 2019 reflects the geopolitical climate in the United States.

FCA sets out 2020/21 priorities

At the beginning of April the FCA published its business plan for 2020/21. The FCA acknowledges how dramatically coronavirus has changed the financial landscape, and how the protection of consumers, firms and markets is more important than ever. It also looks forward to how it will transform the FCA’s operations in the future.

If you haven’t got time to read the plan, here are the key points concerning money laundering/compliance. Specifically, the FCA will be:

• Ensuring banks and payments firms have appropriate financial crime prevention systems and controls in place

• Investing in new technologies and skills to make better use of data

• Deepening its engagement with industry and society on artificial intelligence, specifically machine learning

• Strengthening its rules to prevent money laundering

• Working with domestic and international stakeholders to support a joined-up approach to cryptoassets

• Continuing to take enforcement action where it uncovers serious misconduct, particularly where there is a high risk of money laundering

• Testing how well professional body supervisors in the legal and accountancy sectors have embedded AML strategies (through the Office for Professional Body Anti-Money Laundering Supervision (OPBAS))

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