Banking Scandals Highlight AML’s Weakest Link: People
25 Mar 2019

Recent headlines on “money laundering scandals,” “laundromats” or [INSERT SENSATIONAL NICKNAME HERE] have gotten the attention of policymakers, governments and banks in such a way that it might like seem like the underlying criminality is a new phenomenon. But none of it should be surprising to those tasked with fighting financial crime.

In such times, it might be beneficial to remember what was apparent years ago in the Bank of Commercial and Credit International (BCCI) scandal: money laundering is an old problem of the modern world and its one constant is that it begins and ends with people.

Failings stem from people through their decisions, actions and inactions, yet what is often focused on are compliance controls and such punitive steps as fines, firings and closures. Why are there no criminal sentences of bank employees following large-scale money laundering investigations?

Take the 2012 HSBC case, for example. Under a U.S. Justice Department deferred prosecution agreement, the bank agreed to pay a $1.9 billion settlement for an array of anti-money laundering and sanctions violations. The underlying crimes cost people their lives and potentially put the security of countries at risk, but not a HSBC single employee was indicted as a consequence. For the bank, the monetary penalty was a pittance.

With renewed focus on money laundering in Europe’s banks, many have called for an EU-wide “watchdog” to help national financial supervisors better fight the crime. How such a pan-European regulator would fare remains to be seen, but what is known for certain is that, in each of these banks, someone somewhere made management decisions, oversaw AML processes, onboarded clients, facilitated transactions and otherwise allowed dirty money to be laundered through their institution. Surely it would make sense for EU authorities to hold individuals accountable rather than just turn to regulatory reforms as a panacea.

It’s disappointing to see media headlines such as “Scandals turn compliance staff into ‘rock stars’” in recent weeks. To serious anti-financial crime professionals, compliance work is not a show. We are not here to entertain or make a quick buck or get a promotion by turning a blind eye to compliance failures. This is and should be a “life’s task” to serious compliance professionals, not a reflection of the “me-first” mentality that exists in parts of society today.

In the UK, the Financial Conduct Authority’s Senior Managers Regime has been an attempt to hold senior management accountable for institutional compliance failures, but the effort does not go far enough.  All bank staff should be held accountable as a first step, especially the so-called “front line” of sales and relationship management. These are the functions within a financial institution that are most vulnerable to financial crime. Greed can prompt front-line staff to sideline risk mitigation, especially when doing so isn’t likely to come with serious personal consequences.

Nobody is immune to acting without integrity, even those entrusted to prevent financial crime. Whilst there are many great anti-financial crime professionals in the industry, I’ve seen firsthand how compliance staff can become permissive toward risks. For example, here are some remarks made to me by compliance professionals over the last decade:

  • “Don’t put things in emails or electronic messages as the regulator can request these at any time and it makes it difficult to counter now that you have put it in an email.”
  • “I know you’re trying to be an AML compliance professional but don’t do [X].”
  • “The problem with you is that you spot risks before others. It’s better to sometimes remain quiet and let them discover it themselves.”

Ultimately, both the problem and its solution comes down to “people.” They are the weakest link in need of the greatest repair. Regulations, systems, and processes can be changed, but they can’t alter human behavior as they stand today. Compliance staff should not only be asking themselves ‘can we do this?’ but also ‘should we do this?’ And that question will have more weight if countries start handing down prison sentences for all levels of bank employees, not just fines.

Dev Odedra is an independent anti-money laundering and financial crime expert.  He has over a decade of experience in managing financial crime risk in the retail, corporate and investment banking sectors.  His expertise covers investigations, advisory and controls implementation and improvement.

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