In AML Surveillance, Anti-Money Laundering, Global RADAR

Should the Proposed AML Reforms Be Enacted?

Last week, Global RADAR’s feature story discussed recent developments in the financial services sector that centered on United States banks pushing for easier money laundering rules. A group of U.S. banks, which includes prominent names such as Goldman Sachs, JP Morgan Chase, and others, have called for a complete overhaul of how financial institutions investigate and report potential criminal activity. The group – collectively coined “The Clearing House Association” – has made this unprecedented call for action in the wake of the election of President Donald Trump, as reports have indicated that Trump hopes to cut down on costly regulations for Wall Street.
While the article that was analyzed last week gave a mostly positive stance on the changes as they were presented by The Clearing House, the article “How Banks Want To Make It Easier To Launder Money”, cited in BSA News Now on Thursday, February 23rd, 2017, presents an opposing viewpoint on the proposed changes, and the banks themselves as well. Esteemed writer David Dayen picks apart the arguments brought up by the U.S. banks, specifically in response to the over-emphasis placed on the level of difficulty involved with meeting AML requirements. Dayen says that Suspicious Activity Reports (SAR’s), one of the AML reporting aspects which The Clearing House has described as “burdensome” and costly involves nothing more than the input of simple information including “the subject of the transaction’s personal information, the date of the transaction, the name of the bank where it occurred and its contact information, and a written description of the activity” (Dayen, 2017). He also says that the ineptitude on the part of the banks in completing simple tasks such as these is truly concerning, and also implies that recent fines and sanctions against entities such as Credit Suisse and Deutsche Bank could have easily been avoided.

Furthermore, Dayen also indicates that several banks who have been severely fined in the past have failed to make the necessary alterations to their programs to remain compliant, citing HSBC being fined $1.9 billion just five years ago, yet currently being the subject of a British Financial Conduct Authority investigation (discussed in the Weekly Roundup below). The article also discusses how banks like to spend as little money as possible on their compliance responsibilities, yet do not like to dish out additional money on fines and settlements when they are found to be non-compliant. Additionally, the hesitance of banks to cut off relations with big-time clients who can earn them a significant amount of money, regardless of these clients’ source of funds, is what Dayen believes is the primary reasoning behind the newly proposed recommendations for AML reform. Dayen believes that shifting the regulatory compliance burden from the banks to regulators or the government will lead to financial institutions being able to pick up new, reputable clients more easily. He also believes that if these recommendations were to be adopted, more would follow in the near future, stating “banks will never be satisfied with getting rid of just enough rules”, which will ultimately allow them take more risks (Dayen, 2017).

Weekly Roundup

HSBC’s AML Breaches

Prominent British banking and financial services company HSBC is being investigated by The City regulator over “potential breaches of money laundering rules after concerns raised last year by the anti-crime monitor installed in Britain’s biggest bank” (Treanor, 2017). Primary Monitor Michael Cherkasky, who was appointed to the position after the U.S.-imposed a £1.2 billion fine against HSBC in 2012 for having “poor anti-money laundering controls”, reportedly raised concerns over clients of HSBC having links to terrorist groups.
HSBC is now the subject of a Financial Conduct Authority Investigation into its compliance with “UK money laundering regulations and financial crime systems and controls requirements” (Treanor, 2017). This is the most recent in a string of regulatory problems that have been discovered by the company due to what HSBC chief executive Stuart Gulliver describes as “higher-quality internal policing.”

Real Estate Reform Draws to A Close

In months past, Global RADAR reported on federal regulations that were enacted to shine a light on illicit money entering the U.S. real estate market in 2016. The two areas the government tested the program on – Miami-Dade County & Manhattan – were chosen due to the sheer number of luxury homes available for purchase by buyers who are able to hide their identities behind shell companies. The program draws to a close this week, with no indication from the federal government on whether or not it will be continued or replaced in the future.
The program is centered on title insurance companies increasing personal identity reporting of individuals attempting to purchase homes using shell companies. Due to differences in market values in these respective areas, the threshold for reporting these identities to the Financial Crimes Enforcement Network (FinCEN) was set at a $3 million+ purchase in Manhattan, while in Miami-Dade County this number was set at only $1 million+. The program was found to be “so successful in helping the government identify possible illicit activity that FinCEN expanded the requirements to the rest of New York City; two counties north of Miami (Broward and Palm Beach); five counties in California, including Los Angeles and San Francisco; and Bexar County, Texas, which includes San Antonio“ (Strum, 2017).
Many believe that the success of the program demonstrates the need for even greater transparency in identifying the individuals hiding behind shell companies. However, it is likely that a decision deciding upon future implementation of a similar program will come soon.

Bribery Within Our Borders

The city of Atlanta, Georgia was rocked by recent allegations of bribery and corruption within their local government. Adam L. Smith, head of Atlanta’s Procurement Division, was “escorted out of Atlanta City Hall and had his computer and office records seized by the FBI on Tuesday, Feb. 21” stemming from his role in a bribery scandal where contractors paid $1 million to individuals in order to obtain city construction permits (Barnes, 2017). In his current role, Smith reportedly oversaw billions of dollars in contracts. Atlanta has had a history of individuals involved in unethical activity, most notably with former Mayor Bill Campbell being indicted on charges of racketeering and bribery in 2004. The latest scandal is a critical blow to the city’s reputation, as writer Mo Barnes writes that the city has seen “unprecedented growth and business” in recent years, much of which is likely to draw questions and concerns in the coming weeks.

Citations

Barnes, Mo. “Atlanta City Hall Raided by FBI in Corruption Scandal.” Rolling Out.
22 Feb. 2017. Web.

Dayen, David. “How Banks Want To Make It Easier To Launder Money.” The Nation.
22 Feb. 2017. Web.

Strum, Beckie. “U.S. Crackdown on Money Laundering in Luxury Real Estate Set to
End.” Mansion Global, 23 Feb. 2017. Web.

Treanor, Jill. “City Watchdog Investigating HSBC over Potential Financial Crime,
Bank Reveals.” The Guardian. 21 Feb. 2017. Web.

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