A startling picture of the current scale of anti-money laundering (AML) fines has emerged from a leading compliance technology firm. In an empirical study of AML penalties from 2002 to the present, Encompass Corporation – a provider of know your customer process-automation tools – gleaned the following points:
On that last point, Encompass co-founder and CEO Wayne Johnson explained: “Given their significance in the global financial markets, it isn’t surprising that the focus for fines remains predominantly on banks – although we are increasingly seeing the spotlight land on companies in other industries, such as legal, gaming and cryptocurrency.” In Johnson’s assessment, there is “a growing recognition that these sectors are also prime channels for money laundering, and we expect to see this shift to non-financial services businesses continue in the coming months and years.”
Yes – almost more so than those extraordinary dollar values. The finding should certainly give treasurers, and other corporate finance professionals, pause for thought. Indeed, the research chimes very clearly with the outcome of a recent UK crackdown on money laundering, led by the National Economic Crime Centre (NECC) in partnership with an array of enforcement agencies. In an early-May sweep involving 250 site visits and compliance reviews, the Centre identified failings in 42 businesses.
On 17 May, the NECC announced that, in addition to concerns with certain accounting companies, it had uncovered evidence of AML lapses among legal and property firms. HMRC Fraud Investigation Service director Simon York said: “Businesses in the accountancy, legal and property sectors need to understand that criminals prey on weaknesses, so it’s vital they take all steps to protect themselves. “The money laundering regulations are key to that – but there’s still a minority of businesses who ignore their legal obligations. These inspections are a wake-up call that if you continue to trade illegally, we will come knocking.”
Absolutely. According to further research from regulatory consultancy fscom, HMRC money-laundering fines in 2018 totalled £2.3m: a rise of 91% on the previous year’s £1.2m. In the same period, the average size of individual fines increased from £1,310 to £3,450. fscom’s figures show that HMRC made 1,340 AML interventions over the past year, and 5,000 in the past five years. The consultancy’s managing director Jamie Cooke said: “Cracking down on money laundering is at the top of the government’s agenda, and HMRC is responding by increasing the value of fines it hits businesses with. “Businesses that deal with a high volume of transactions and can remit payments globally… look exposed to AML enforcement action due to the increased risk of the service they provide.”
That’s correct. Johnson noted: “Ever since the financial crash in 2008, there has been an ever-growing focus [among enforcement bodies] on the identification and prevention of money laundering and other financial crimes. “Since 2014, total AML penalties have remained above a billion dollars every year – perhaps reflecting the increased regulatory focus on this area since the Panama Papers were leaked in 2015. “Multimillion-dollar fines are becoming the norm – and 2019 looks set to be the biggest year yet in terms of the value of fines handed out by regulators.”
Johnson explained: “Although not currently the case in 2019, overall, US-based regulators have been the most active over the period in which our research was carried out.” In his view, “this is not a surprise as the US financial market is the biggest in the world and it also has a transparent regulatory culture, which not all jurisdictions do. This transparency is shared by the UK, which is the second most active jurisdiction when it comes to AML penalties.” He stressed: “The current US administration has also been increasingly focused on sanctions, suggesting greater future enforcement actions by US regulators.”
We shall leave the last word to fscom’s Cooke… “Simple steps can be taken to ensure businesses don’t fall foul of regulations,” he said. “A regular review of the AML controls and checks in place during a client onboarding process is an obvious starting point.” He added: “It is always preferable to prevent the problem coming into the business than dealing with it later – hence the importance of strong onboarding measures.”
Matt Packer is a freelance business, finance and leadership journalist