AML rules missing targets

Market participants looking to new regimes to tackle AML loopholes

by | January 5, 2021 | bobsguide

The rise of anti-money laundering (AML) related fines over the past few years shows regulators are homed in on tackling the problem, but current supervisory regimes lack efficiency when it comes to tackling the amount of fraud, according to market participants.

“Banks spend billions on their compliance plan, and then they get fined on failure to comply,” said Graham Barrow, director at the Dark Money Files, speaking on a webinar last month. “We fundamentally need to rethink how we do this. The ease with which you launder money encourages it – it’s a percussive situation. We are failing.”

Fenergo’s latest findings reveal that penalties have globally totalled $10.4bn for non-compliance with Anti-Money Laundering (AML) regulations last year.

In 2019 alone, 58 AML penalties were handed out across the globe, totalling $8.14bn, according to Encompass Corporation. Almost half were distributed in the previous year, which reached $4.27bn in value.

According to Jeremy Kuester, counsel at White & Case LLP, better metrics need to be found for regional AML regimes to be successful.

“Money laundered is confiscated by governments and this might be an indicator that governments aren’t doing enough. But maybe these aren’t the right metrics.”

The mismatch of regulations is also contributing to the increase in money laundering across the globe, according to Graham.

The diversity in regional rules could be harmful to the efficiency of the system put in place – a loophole for criminals.

Whilst complexity has become a friend to money launderers, countries have adopted a more aggressive approach in regards to fines.

Norway and the UK have put into place robust enforcement actions. In early December, Norway’s biggest bank DNB faced $45.4m in fines from the country’s financial regulator, according to Reuters, for failing to comply with money laundering rules.

As of June this year, Europe’s Sixth anti-money laundering directive (6AMLD) will also be implemented by member states in a bid to remove any loopholes and ensure stricter punishments on criminals.

For Rachel Woolley, global director of financial crime at Fenergo, prosecution rates have remained too low up, which has contributed to the continuing non-compliance of financial institutions.

“We are starting to see more than financial institutions in AML requirements, such as the likes of individuals who charge a fee to help you launder money. Accounting firms, legal firms, casinos, real estate agents…It’s about extending that network of stakeholders.”

Whilst penalties are necessary from a government perspective, Kuester says they will not necessarily lead to the required changes.

“AML should be more financial intelligence-based and less compliance-based. This is one of the issues with the FinCEN files,” he said.

Leaked last year, the FinCen files included thousands of documents suggesting many financial institutions were turning blind eyes to money laundering.

“Financial institutions can do a much better job of using financial intelligence. I would like to see a greater focus on financial institutions on driving good intelligence and collaborating with government agencies,” he added.

From a practical perspective, enforcement action takes up a lot of resources, according to Kuester, which can often limit the involvement of a prosecutor within a case.

“The juice must be worth the squeeze. If you are going to spend millions of dollars to investigate a financial investigation, you’re going to have to return more in fines,” he explained.

Penalties are also scaled to the size of financial institutions, meaning prosecutors tend to focus on larger firms.

“For smaller ones, you end a financial institution that a community relied on. That being said, if the financial institution is actively complicit in money laundering, you better believe they will get caught,” added Kuester.



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