HSBC’s shaming over Mexican drug money earlier this decade is beginning to look like a mere preface to the crisis that banks across Europe are now facing from financial crime.
Images of German police raiding Deutsche Bank’s headquarters late last year as part of an investigation related to the Panama Papers press leak on offshore tax havens reinforced a sense that this is another reason to steer well clear of European banks.
Though apparently unrelated, the raid happened just weeks after Danske Bank’s former chief executive Thomas Borgen resigned over a €200 billion money-laundering breach in its Estonian branch, for which Deutsche had acted as the main correspondent bank.
It is not just German and Scandinavian lenders. ING, Société Générale, Standard Chartered, UniCredit and HSBC – this time in a tax evasion case in Belgium and Switzerland – have all been hit by the equivalent of hundreds of millions of dollars or more in penalties for compliance failings over last year. And more is coming.
Rather than bemoaning the amount of money they need to spend, are banks across Europe nally coming to accept that building proper defences again money laundering is not an annoyance, but one of the most basic duties inherent in their licence, especially in a world of free capital movements?
HSBC, after the 2012 case in Mexico, shows the direction of travel. Since its deferred prosecution agreement that year, it has boosted its compliance staff from a few hundred to about 7,500. Slightly more than half of those work on anti-money laundering.
“This is fundamental to how a bank operates,” says group chief compliance ofcer Colin Bell, a former British Army ofcer. “There’s a basic legal obligation to monitor activity and report anything suspicious. It’s also a moral obligation.”
A US-imposed nancial crime monitor exited HSBC in 2017, after improvements at the bank. However, ramped-up spending in the latter part of this decade has not prevented more criticism of HSBC’s past, notably in the Panama Papers scandal.
Now other banks, especially in northern Europe, are having to recognise their anti-money laundering systems have been weak.
Deutsche already earned large US and UK nes in 2017 for carrying out billions of dollars of Russian mirror trades, a preferred instrument for money launderers. Germany’s nancial regulator BaFin still found it necessary late last year to send in a special representative to the bank to ensure it was tightening up its systems.
The trend is even more obvious in Scandinavia. For Danske’s new chief executive, Chris Vogelzang, demonstrating that the bank is working to improve its anti-money-laundering systems is an all-encompassing mission.
Nordea – which has also been subject to press leaks about suspicious transfers from the former Soviet Union – has been forced to admit its nancial-crime defences were inadequate, too.
“We accept that it’s the right thing for the bank to do,” says chief risk ofcer Matthew Eldereld, describing the €700 million it has spent on the problem since 2015.
ING’s €775 million settlement with the Dutch public prosecutor last September over money laundering lapses has necessarily coincided, similarly, with much bigger investment in what the prosecutor said was its understaffed and undertrained anti-money laundering systems.