Legislation is intended to guide regulated industries on how to conduct and operate, and compliance departments are constantly faced with new regulations created to prevent money laundering and combat terrorist financing. These sets of regulations are commonly referred to as AML (anti-money laundering) and KYC (know your customer) and are enforced in the vast majority of jurisdictions. A thorough knowledge of the account holder is essential, especially in the identification of persons who are the subject of sanctions, Politically Exposed Persons (PEPs), or those who may be of high risk to the bank’s customers and stakeholders.
Taking the appropriate steps to meet your AML, KYC, and CTF (counter-terrorist financing) legal obligations might seem like a no-brainer because no business wants to be held responsible for enabling fraud, money laundering, or terrorist financing. Not only is the bad press alone a PR nightmare that will take years for the company to rebuild trust, but the legal problems incurred will involve a lot of time, money, and resources to correct the situation. In this blog post, we touch on the different types of criminal charges and consequences that have been administered to individuals for not adhering to the law.
From 2004 to 2010, 110 financial institutions in the United States were fined for AML failures, including lack of training. The most commonly publicized penalties for compliance failure are monetary fines. There has been no shortage of media coverage of major financial institutions such as HSBC ($1.92 billion) and Standard Chartered ($327 million) in 2012, and BNP Paribas ($8.9 billion) in 2014. Many other institutions have also been fined for smaller amounts over the years as well.
Another criminal penalty for non-compliance is imprisonment. In the UK, failure to disclose suspicious transactions is an offense that could result in a maximum prison term of 5 years in addition to fines. The same is also true in Canada. Prison terms for money laundering offences in the United States are considerably more severe, ranging anywhere from 5 to 20 years, depending on the nature of the offence. Although apparently not as common, the news media has noted cases of imprisonment for money laundering in Spain, the UK, and the US.
It is interesting to note that the offenses that were punished with prison terms were relatively smaller in magnitude when compared with those of the major financial institutions, which resulted in large fines but no prison sentences.
Why haven’t individuals affiliated with non-compliance at prominent financial institutions served any jail time?
There are a number of possible explanations that regulators are only levying large fines against large banks rather than pursuing criminal prosecution. One possibility is that it would be difficult to assign criminal responsibility to a specific individual or group of individuals, given the large corporate structure. However, there is a more likely a very different reason. A Breitbart article on the topic of money laundering specifically mentions that the US Department of Justice has chosen not to prosecute bank officers for fear that the stability of the financial system as a whole could be threatened.
What would be the point of sentencing bank executives to jail for failure to detect and prevent money laundering? One could argue that making an example of offenders could set the tone through deterrence. Take, for example, the story of Richard Bistrong. He was a successful international sales executive who was handed a 14-month sentence for bribing foreign officials to win their business.
Although Bistrong’s crimes do not fall under the categories of money laundering, Judge Richard Leon, US District Court in Washington, DC delivered an insightful statement during Bistrong’s sentencing hearing:
“Have you made a turn in the road for the better? There is no question about that either. But I have to be concerned about others, others out there right now who are aware of this case, who are aware of the cases in this arena and who may think they can pull conduct of similar nature or maybe even more egregious than that you engaged in, they need to understand, they need to be concerned that if they are caught, and even if they cooperate, they are going to do jail time because in this arena, that is the ultimate deterrence.”
While Bistrong’s criminal actions were quite intentional, money laundering facilitated by financial institutions is not always a deliberate act. Some may argue that sentencing bankers to jail would not serve justice, and while that may be true to some effect, regulators should evaluate the effectiveness of fines as a means of deterrence.
Whatever the case, whether penalties for a failure to comply with AML and KYC regulations are financial or served through jail time, there is a clear need for financial institutions to ensure that the transactions that they process are all above board. The potential threat of facing fines or criminal prosecution should not be the primary motivation. Rather, financial institutions need to be increasingly vigilant as regulators continue to raise the standard for corporate integrity and as consumers and clients increasingly expect demonstrated moral behaviour from their banks.
Currently, there is no set standard for gathering information necessary for AML and KYC compliance. Financial institutions are taking different approaches, but with all the new technologies and data available, there is hope for setting a standard that regulators are comfortable with, especially to help with multi-country operations that make compliance a complex undertaking.
Electronic identity verification services, such as Trulioo’s GlobalGateway, offer cost-effective and fast proof of identity using multiple, reliable and trusted data sources. Because regulations vary depending on industry, region, and transaction amount, GlobalGateway allows complete customization of the verification rule set providing organizations with optimal verification results based on its risk mitigation process. Refining rules optimizes the amount of online matches during onboarding, and saves time and resources by reducing the number of manual verifications required.
For more information about GlobalGateway, download our brochure or check out our case studies to learn more about Trulioo’s online identity verification service. Contact us for a free trial and experience how GlobalGateway can keep you on track with AML and KYC requirements.