Severe fines against large banks for violating anti-money laundering rules has led the banks to place a heavy focus on making sure their customers are legit. The result is a closing accounts of customers who have too high a risk of being shady. The unintended consequence is legitimate businesses and legitimate charities have difficulty finding a place to do their banking.
In a wonderful irony, articles at The Wall Street Journal on two successive days illustrate the tension. The articles leave you wondering in opposite directions. One article makes you think the banks ought to get serious about screening clients and shut down a bunch of accounts. The other article makes you wonder why these charities doing such wonderful work are getting all their accounts closed for no good reason.
First, charities finding themselves without bank accounts.
Another charity that operates a hospital in Syria had their accounts closed by BofA. After moving to Wells Fargo, their accounts were closed there. Staff at the hospital went four months without pay while the charity tried to figure how to get money into the country.
Authors have spoken to eight other charities who have had their accounts closed. Many others have had money transfers going into Syria, Turkey, or Lebanon held up for varying lengths of time.
Article mentions that banks are under pressure from the U.S. federal government to monitor their customers accounts and close those accounts which could be related to money laundering, whether related to drug running, terrorist financing, or other illegal activity.
Previous post discussed Barclays drawing a £72M (US$109M) fine for breaking British anti-money laundering laws. The bold scheme involved not putting clients’ names into the computer system amongst other creative plans. They bankers involved also gave their clients a money back guarantee if their names ever became public.
I did a bit of research to find out how the fine compares to their financial statements. Was wondering how big a hit $109M really is for them.
You can find the 2014 financial statements for Barclays at this link. The financials are here. Income statement is on page 224.
Here are some key numbers to help put the £72M fine in perspective:
Check out this plan for evading money laundering rules. Oh, it came with a money back guarantee to clients whose money was being laundered. Also, I’ve accumulated a preliminary list of industry-wide fines for getting caught busting those AML rules.
According to the article, this scheme involved merely performing an Internet search to verify the source of funds as asserted by the clients, did not enter clients’ names on the internal computer systems which meant compliance staff would never find out who owned the money, and used quickly opened & closed offshore accounts to move the money.
One of the general rules of life seems to be that when one person does something really bad, the larger group pays the penalty.
You remember the drill – one person in the school classroom misbehaves on the playground and the whole class looses recess.
Or one of your coworkers breaks etiquette of the office and there is a new restrictive rule that inconveniences everyone. One person pushes the boundary on expense reimbursement and everyone gets new reporting requirements.
Well, same thing is emerging with the tremendous effort against money laundering.
High level overview on the how-to of laundering money and using tax havens. Will leave you curious for more details, but it’s a good intro. Also, article on another couple of billion in another settlement from the Great Recession.
4/7/13 – ICIJ – Tax Havens 101: the high cost of going offshore – Good 4 minute primer on how to set up and run an offshore operation to hide assets, whether from the taxman, your spouse, or creditors.
As mentioned yesterday, StanChart did get a $300M fine for running afoul of their 2012 agreement. Their software to monitor wires for possible violations of money laundering laws didn’t pick up on one or several million wires that should have been flagged.
In addition to the fine, the bank agreed to permanently halt US dollar settlement for about 300 high-risk clients in Hong Kong and UAE.
Standard Chartered is in trouble again for money laundering issues.
Either I’ve been blogging long enough to see cycles repeating or the too-big-to-fail banks are getting more casual in their casual efforts to comply with US law. Or maybe I’m just suffering from confirmation bias.
Their software that is supposed to flag suspicious transactions allegedly failed to identify a million transactions that should have been reported to US authorities for review. That is according to the monitor installed to watch their compliance.
Unknown yet how many, if any, of the million suspicious wires were actually illegal.
Settlement negotiations are underway. Discussion in the air suggests a fine of $100M is possible. The bank’s chief executive has reportedly flown to New York to participate in the negotiations.
For the rest of this article, all amounts are in millions of Euros.
The bulk of the evasion of sanctions ran from 2002 through 2009 but continued into 2012, well after the bank knew the investigation was underway. That is concentrated on 8 years but stretched out to about 11 years. Let’s assume the volume was actually dropping in ’11 and ’12 so it is essentially a 10 year run of money laundering.
That means the fine was paid in one year, but it is an accumulation of 10 years activity. Thus we can amortize the fine over 10 years
Fine in relation to financial statements
Let’s look at the fine in relation to the 2013 consolidated financial statements, which can be found here on this page of their website.
I previously mentioned the total penalty BNP Paribas agreed to pay for laundering money to evade U.S. trade sanctions was $8,833.6M. The updated WSJ article said the total settlement is $8.97B. After realizing the disconnect, I went back to the federal plea deal. I missed that amount until this morning.
The forfeiture is $8,833.6M, which represents the amount the feds say on page 1 of the plea deal is …
Those of us auditors outside the huge firms may not have to deal directly with the impact of banks engaging in money laundering, yet we can still learn by watching. Here’s the background in one sentence – – Many of the largest banks were systematically ignoring U.S. laws against sending money into certain countries.
Looks like there is another flood of reporting ready to appear in print on bank secrecy and hiding wealth.
This project will be called the Pandora Papers.
If you recall, a major series of reports back in the 2016 timeframe described money laundering efforts flowing through one particular law firm in Panama. You can read my comments on the coverage.
The International Consortium of Investigative Journalists (ICIJ) brought together around 600 journalists from about 150 media outlets to analyze a data leak with 2.94 TB of info. That’s terabytes, as in thousands of gigabytes.
It is so sad to say, but a reality never-the-less, there are so many major banking fiascos with such a wide range of willing participants that it is impossible to keep straight the players and disasters and fines based just on memory.
So, that means I have a spreadsheet to track the willful disasters I’ve been following.
My tally does not include all the billions of dollars paid to settle mortgage issues arising from the Great Recession. That is another massive set of disasters all by itself.
Here is my running tally of the amount of stockholder equity wasted for a range of different debacles. Amounts in millions of dollars: