It’s clear from the FinCEN files, and other press releases over the years, that some financial institutions deem it acceptable to allow the facilitation of money laundering as a normal part of their day-to-day operations. Questions clearly need to be asked, but when the rewards far exceed the sanctions that regulators would ever levy on them, is it any wonder that such behaviour is seen as just a cost of doing business?
Paul Pelletier, a former senior U.S. Justice Department official and financial crimes prosecutor, commented that “Financial institutions have abandoned their roles as front-line defences against money laundering”. Which leads to the conclusion that compliance cultures within these institutions are not fit for purpose in the fight to eliminate such criminal activity.
What the latest reports have shown
Five of the financial institutions most often mentioned in the FinCEN files were found to have repeatedly breached their promises to regulators about their future behaviour. The Financial Action Task Force (FATF), the global anti-money laundering and terrorist financing watchdog, acknowledged that: “Everyone is doing badly”.
Country-evaluation reports carried out by FATF show lots of box-ticking but very little practical progress in the fight against money laundering, with many countries seemingly more concerned about looking good on paper rather than actually taking proactive and robust action to tackle money laundering. If regulators are considered to only be interested in “technical compliance” it’s evident that the cultures within financial institutions are not fit for purpose.
Compliance cultures gone awry
Effective compliance cultures have to be initiated from the very top of an organisation. But when this has to compete with making large profits for shareholders and paying high salaries to top management and ‘star players’, it’s no surprise when compliance, and those responsible for it, quickly become second class citizens.
In order to maintain their reputations and an air of legitimacy with the general public and regulators, financial institutions spend vast amounts of money on marketing and public relations machines to put out positive messages. However, the release of the FinCEN files is now likely to focus minds on these institutions’ less savoury activities. The question is whether it will just be seen as a ‘blip’, or actually lead to substantial reputational damage and a major clampdown by regulators?
Is whistleblowing on the horizon?
Compliance specialists operating within financial institutions have probably been pulling their hair out since the release of the FinCEN files, as it is likely that they will be the scapegoats for any wrongdoing that is identified during future regulatory investigations. Though if this happens will we then see numerous whistleblowing cases coming out of the woodwork from disgruntled compliance officers who have been dismissed for just doing what their leaders had told them to do? But how many of those cases will be upheld is going to be another story.
James S. Henry, a New York-based economist, attorney and author who has been investigating the world of money laundering for decades, says it’s going to take “more prosecutorial will and international collaboration” to change the relationship between banks and illicit cash flows. That includes holding banks as institutions, as well as top bankers themselves, accountable. “We have to put some senior executives who are in charge of this stuff at risk, and that means fines and/or jail”.
If prison is the only way to ensure inappropriate compliance cultures don’t operate within financial institutions going forward, then so be it.
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