Financial crime may result in severe penalties. Therefore, several anti-financial crime regulations are designed to combat economic crime and protect the integrity of financial systems and institutions. Some anti-financial crime regulations include anti-money laundering (AML), counter terrorism financing (CTF), corruption and bribery laws and fraud prevention requirements.
Despite the efforts of financial institutions to comply with anti-financial crime rules, every year, billions of fines are imposed because of the ineffectiveness of these programs.
This article will discuss some of the most considerable penalties that financial institutions and other entities faced during 2022 and the factors that led to these penalties.
The largest bank in Denmark, Danske Bank, has reached the following coordinated resolutions and agreed to pay:
• The US Department of Justice (DoJ) – $2 billion
• The US Securities and Exchange Commission (SEC) - $178.6 million
• The Danish Special Crime Unit (SCU) – DKK 4.749 billion
The fines were imposed due to significant failings and misconduct related to the non-resident portfolio at Danske Bank’s Estonian branch between 2007 – 2016. Approximately 200 billion dollars of questionable funds were transferred from the non-resident portfolio of the Estonian branch of Danske Bank to the US financial system. Moreover, the client portfolio of the branch involved high-risk customers, many of whom were tied to Russia.
The factors that lead to the penalties are:
• Danske Bank defrauded US banks regarding the Danske Bank’s Estonia customers and anti-money laundering controls to facilitate access to the financial system.
• Danske Bank failed to monitor the activities of the Estonian branch.
• The Danske Bank Estonian branch failed to implement basic Know Your Customer (KYC) checks for its high-risk clients.
• The branch did not respond to suspicious customers and their activities.
Lafarge SA, a global building materials manufacturer, pleaded guilty to providing material support and resources to terrorist organisations (ISIS and ANF) and agreed to pay $778 million in fines.
The accusation was that company Lafarge SA and its subsidiary company Lafarge Cement Syria S.A (LCS) agreed to pay two of the world's known terrorist organisations - ISIS and al-Nyshar Front - about $6 million in exchange for permission to operate a cement plant in Syria which brought to Lafarge SA $70.3 million in revenue.
Lafarge SA spent $680 million to build a cement facility in Syria between 2010 and 2014. During the outbreak of the Syrian Civil War in 2011, Lafarge and LCS formed agreements to make payments to the mentioned terrorist organisations to protect its employees, assure the Plant's ongoing operation, and gain a competitive advantage in the Syrian cement market.
The payments were made in the form of "taxes". Still, they were designed in a way to compensate the terrorist organisation based on the amount that the company was able to sell to incentivise the terrorist group to act in LCS's economic interest.
Credit Suisse reached a settlement with the Parquet National Financier (PNF) to resolve an investigation regarding its past cross-border private-banking services between 2005 and 2012. The settlement includes:
• A public interest fine of EUR 65.6 million.
• The payment of an additional amount of EUR 57.4 million.
Prosecutors stated that Credit Suisse assisted its clients to void tax on their wealth. Credit Suisse will additionally pay EUR 115 million to the French State as damages for lost revenue.
FinCEN imposed a $140 million civil penalty against USAA FSB for the wilful violations of the Bank Secrecy Act (BSA) such as:
• Implementing an AML program which satisfies the minimum requirements of the BSA
• Wilfully failing to accurately and timely report thousands of suspicious transactions to FinCEN, including customers that performed apparent criminal activity.
USAA FSB received notices in the past and repeatedly failed to remediate its inadequate AML program.
Santander UK Plc was penalised by the Financial Conduct Authority (FCA) £107.8 million for serious and persistent gaps in its AML controls. More specifically Santander failed to:
• Adequately verify the information provided by customers about their professional activity.
• Properly monitor the expected turnover of the accounts with the actual turnover of the account.
• Manage correctly Business Banking accounts.
• Deal with “red flags” associated with suspicious activity such as automatic monitoring alerts.
The penalties imposed by the authorities often depend on the type and severity of the crime, as well as the jurisdiction in which the crime was committed.
It's important for individuals and organisations to be aware of the potential penalties for financial crimes, and to take steps to comply with anti-financial crime regulations to avoid them and protect their reputation.
In conclusion, businesses must ensure that they are compliant with the AML/CTF regulations, to avoid themselves from costs of non-compliance. MemberCheck’s comprehensive compliance solutions provide a cost-effective and efficient way to manage AML/CTF risks, while also helping businesses stay up to date with the latest regulations.