Donald Trump and the future of financial crime prevention in the US
09 Nov 2016

Donald Trump’s stunning victory over Hillary Clinton hails an era of unpredictability with regard to the policies the US will pursue at home and the role it will play in the world and the world economy. The FT’s John Authers writes about a ‘bonfire of the certainties‘ – among others, the commitment to independent central banks and free trade – that have reassured the financial world for the past four decades.

A Clinton victory would have been a market ‘non-event’ according to Bloomberg, but Trump’s win has caused a degree of instability, with an initial sharp fall in stock futures, a 10% plunge in the Mexican Peso and an increase in traditional ‘safe-haven’ assets such as gold and the Swiss Franc. The US dollar is expected to decline in the short to medium term and some significant policy changes are likely at the Fed.

Trump’s campaign was never heavy on policy and the details that did emerge were occasionally contradictory. But the broad tenets of his economic policy, and some of his more specific campaign trail promises, have significant implications for the global fight against financial crime.

In a speech three months ago Trump proposed a moratorium on new financial regulation until the US economy shows ‘significant growth’. He also regularly promised to repeal the 2010 Dodd-Frank Act, Obama’s response to the Financial Crisis, which was hailed as one of the most significant changes to financial regulation since the Great Depression. Dodd-Frank introduced a series of protections against the kinds of excessive risk taking that triggered the Crisis, and made various provisions for transparency and increased oversight of Wall Street. One of the practices it criminalised is ‘spoofing’, in which traders push down prices with huge fake sell-offs and then profit on cheap contracts. It was with this technique that British trader Navinder Sarao, who appeared in court in Chicago this Wednesday, played a part in triggering the 2010 flash crash that wiped nearly $1 trillion off the value of US shares.

Dodd-Frank also established the Consumer Financial Protection Bureau, with a remit to support customers and hold businesses accountable for illegal practices. One of the Bureau’s recent high profile actions was ordering Wells Fargo to refund the thousands of customers charged fees for unauthorised accounts opened in their names by bank employees. With Republican control of both houses, and Trump set to nominate at least one Supreme Court judge, any moves towards deregulation are likely to come in parallel with an increasing lack of political will to prosecute banks and other major financial players.

In addition, as KYC360 reported in September, the US Office of Foreign Assets Control (“OFAC”) has been issuing enforcement actions against companies from a broad range of jurisdictions in an increasing diversity of sectors. If, as expected, Trump’s victory sees the US move towards isolationist trade policies, it is possible that there will be a decline in OFAC’s funding and remit.

More speculatively, high tariff trade policies create an obvious incentive for smuggling and the black market trade of protected goods. On the other hand, Trump’s proposal to repeal the estate tax, if carried through, would reduce one of the more significant motivations for hiding assets from the taxman. And then of course, there’s the effect the fabled wall might have on the drugs trade with Mexico.

In all seriousness, there can be no doubt that significant changes are afoot. It may take a long time for Trump’s anti-establishment, anti-regulation rhetoric to make its way into legislation – or indeed it may never do so. But his victory marks a substantial change in the prevailing attitude of the Whitehouse towards the US economy, and towards its banking industry in particular.


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