Twelve cases involving banks and possible illicit money flows are currently under investigation by U.S. authorities
NEW YORK (TrustLaw) – Regulators worldwide are putting the squeeze on banks that launder money for kleptocrats, mobsters and terrorists, pressuring the financial industry to clean up its act or face prosecution.
Experts told an International Financial Crimes conference in New York that a wave of new rules requiring banks to monitor their clients and report suspicious money movements was part of a growing recognition that all too often financial institutions turn a blind eye to corruption, which undermines human rights, harms countries and threatens national security.
"You ain't seen nothing yet," Kevin Ford, formerly responsible for anti-money laundering at Goldman Sachs and now managing director at Regulatory Data Corp., an advisory firm on global risk and compliance issues based in Pennsylvania, said of what he sees as the accelerating crackdown on banks.
"There is going to be a storm of enforcement coming, and it couldn't come at a worse time. As an industry, we have lost all our moral authority since the financial crisis."
Internationally, a range of anti-bribery, tax evasion, asset forfeiture, anti-money laundering and sanctions laws are being used to capture criminals and rogue government officials. Banks are central to the crackdown since they are the conduits for the trillions of dollars in illicit financial flows each year.
Twelve cases involving banks and possible illicit money flows are currently under investigation by U.S. authorities, according to several conference participants who have scrutinized bank regulatory filings and seen information on the probes inadvertently released on the Department of Justice website.
At least one big case is expected against HSBC. A U.S. Senate report in July alleged that the U.K.-based bank had let its clients shift illicit funds from Mexico, Iran, the Cayman Islands, Saudi Arabia, Syria and other countries.
HSBC says the case is not about the bank's complicity in money laundering, but about "lax compliance standards." It has set aside $700 million in anticipation of U.S. fines.
In another case, New York bank regulators settled with Standard Chartered in July on charges it concealed transactions linked to Iran, a country under international financial sanctions for its nuclear development programme.
NEW POWERS
More cases are likely to come because U.S. and international regulators have won extra powers over the past decade and have grown far better at working together to track illicit fund flows, financial crime experts said at the conference, sponsored by the Association of Certified Financial Crime Specialists.
Several factors are behind the change.
Non-governmental organizations such as Transparency International and Global Financial Integrity have succeeded in highlighting the massive problem of illicit fund flows, use of tax havens and money laundering, which bleed money from poor countries and contribute to a raft of national security problems such as drug wars, human trafficking, nuclear technology, arms smuggling and terrorist financing.
In turn illicit flows now are on the agenda at meetings of G20 leaders from the world's major developed and emerging economies, who have given inter-governmental agencies such as the Organisation for Economic Cooperation and Development and the Financial Action Task Force the job of developing international standards for tackling financial crime.
U.S. regulators meanwhile gained new powers under the 2002 Patriot Act to track funds following the 9/11 attacks, and in the 2010 Dodd-Frank Act after the financial crisis.
They have responded by beefing up investigators and improving the coordination amongst the Department of Justice, the U.S. federal bank regulators, the Drug Enforcement Agency and the Securities and Exchange Commission.
Moreover, new rules are coming. The U.S. Treasury's Financial Crimes Enforcement Network is considering new regulations that would require banks operating in the United States to verify the identity of the true owners of bank accounts, trusts and partnerships whose funds they manage. Similar regulations are already in force in the European Union.
Legislation is also before the U.S. Congress to require corporations to disclose their true owners. Shell corporations are a common way of hiding potentially illicit funds and bringing money into the United States, a favoured destination for ill-gotten gains.
SUITCASES OF CASH
The global crackdown is already making it harder to launder money, several experts said.
Shell banks on offshore islands, once used to shuffle funds in secrecy, have largely disappeared, said Elise Bean, staff director for the U.S. Senate permanent committee on investigations which has probed financial crimes.
David Regan, global managing director of the consulting firm Accenture, said bank rules are getting so tough that he predicts criminals will resort to suitcases of cash – a practice largely abandoned due to the ease of global banking.
"We are pushing more and more folks into the shadows," said Jeffrey Neiman, a lawyer in Fort Lauderdale, Fla. As a federal prosecutor, he brought the landmark case against Swiss banking giant UBS for helping U.S. citizens evade taxes.
TIPS FOR BANKS
James Richards, executive vice president at Wells Fargo in San Francisco had this advice for banks to avoid prosecution: include anti-corruption in the basic ethics training for all staff; add advanced training for staff in high-risk locations and sectors of the bank; conduct rigorous examinations known as due diligence on anyone the bank enters into business with; adhere to excellent accounting standards; and monitor and enforce anti-money laundering.
Other tips from the experts were that criminals never act alone. They also advised banks to use software to trawl bank emails for key words on bribery and to remember that kleptocrats and criminals prefer round numbers.
"Seventy-five hundred dollars, 50,000, 100,000. Using an algorithm for round dollars and politically exposed persons, and you could capture everything that's fraud, money laundering or bribery," said Daniel Boylan, head of compliance for trade finance and Foreign Corrupt Practices Act at CIT Group, in Charlotte, North Carolina.
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