Wednesday, October 28, 2020

Money laundering fines on banks hit $10 billion in 2019


Regulators hit banks with a near record $10 billion worth of fines in a 15 month period through 2019, and the figure is expected to increase in 2020. That’s according to a new report from Fenergo, a European startup that makes software to help financial institutions detect illegal transactions.

According to Fenergo’s research, 60.5% of the fines came from banks violating anti-money laundering rules, while nearly all of the rest—38.7% of fines—arose as a result of transactions with countries under sanctions. In the latter case, it was U.S. regulators that levied almost all such fines, amounting to a total of $3.67 billion in penalties.

One remarkable finding in the report is that, despite a spate of new data privacy laws, they resulted in almost no fines. Penalties related to privacy laws, including Europe’s GDPR, accounted for barely $1 million or 0.01% of the $10 billion total.

Overall, the $10 billion of fines in the recent 15 month period contrasts with the period of 2008 to 2018 when the total for the entire decade amount to $26 billion (though one year, 2015, saw a higher total than the most recent figure).

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According to Fenergo, the surge in fines stem in part from geopolitics, as regulators—especially those in the U.S.—levied much stiffer penalties on banks abroad versus those in their own country.

In an interview with Fortune, Fenergo CEO Marc Murphy also pointed to new and complex regulations that have proved to be a challenge for the compliance departments of many banks—as well as criminals’ adeptness in dodging money laundering and know-your-customer rules.

Murphy estimates that 60% of fines arose from crooks’ outwitting banks’ screening systems, while another 20% came about because of simple errors on the part of bank employees.

The final 20%, he says, arose as a result of banks colluding with criminals or launching illegal schemes themselves—such as Wells Fargo opening accounts for customers without their permission.

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Murphy added that many of the incidents for which banks are fined could be avoided by better deployment of software technology.

He pointed to the example of a U.S. financial institution on the west coast that was fined after regulators discovered that a purported butcher shop—which turned out to be a pawn shop operated by a Mexican cartel—was depositing $350,000 per week.

Murphy says the real identity of the “butcher” could have been detected with a quick search on Google Maps.

Fenergo predicts fines on financial institutions will only grow in coming years, as the U.S. and other countries ramp up sanctions and anti-money laundering regulations.

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