A Year In Review: AML Fines, Leaks, And The Future Of Due Diligence

Although COVID-19 continued to be front and center of everything in 2021, the past year also illustrated the global trend toward enhanced anti-money laundering (AML) regulations, increased enforcement from local regulators, and pressure for greater ultimate beneficial ownership (UBO) transparency as a way to address AML risk. This can be seen in new legislation, heavy fines against major players , and reactions to the Pandora Papers.

In terms of legislation, 2021 ushered in new AML efforts worldwide, including in jurisdictions like the US and EU, where financial regulations tend to have an impact beyond their own borders. The former’s Anti Money Laundering Act (AMLA) and the European Commission’s proposals that strengthen the existing AML and CFT rules both, for example, call for new overarching entities to facilitate and strengthen cooperation between parties responsible for enforcement, be it local agencies, member states, or international bodies. In particular, the AMLA allows for worldwide jurisdiction, enabling the US Department of Treasury to subpoena foreign institutions with US accounts. Other countries, from Switzerland to China, also took steps to address their existing loopholes that increase the chances for money laundering. Indeed, if this trend continues, as seems likely, we expect to see more governments empowering and equipping their AML/CFT bodies with the necessary tools to enforce new and existing regulations. This trend is also illustrated by increasing AML fines worldwide, which in 2021 will exceed 2 billion USD, mainly against financial institutions targeted for non-compliance. As new legislation is passed and AML/CFT issues remain a priority, fines are likely only to increase, particularly given their ability to not only punish the targeted institution, but act as a clear motivation for others to ensure they aren’t subject to similar penalties. Indicative of this is the fact that such fines have hit large and small banking institutions alike, from ABN Amro (USD 574 million) to Capital One (USD 390 million), Deutsche Bank (130 million), SEB Bank (USD 107 million), Bank Julius Baer (USD 79 million), DNB ASA (USD 48 million), and, most recently, HSBC (GBP 63.9 million or about USD 84.6 million). Indeed, Europe surpassed the US this year in the total number of regulatory enforcement actions brought, while 2021 also saw the trend of criminal proceedings against repeat violators. Some of the mounting pressure to increase enforcement and close loopholes over the years has resulted from the seeming never-ending leaks exposing not only corruption and other illegal activities among politicians and high-profile and high-net worth individuals, but raising awareness of legal loopholes that, for example, reduce tax burdens but tend to be perceived by the general population as available to a limited portion of the population. This has driven calls for greater transparency and policies to prevent not only blatantly illegal actions like tax evasion, but also shut the door to grey area activities like tax avoidance.
At the start of 2021, the compliance industry was still coming to terms with the late 2020 FinCEN Files leaks. This involved 2,500 documents, mainly Suspicious Activity Reports to US regulators, which, many argued, demonstrated complicit activities by banks that enabled significant money laundering. Not even a year later, in October 2021, the massive Pandora Paper leaks surfaced, in which over 150 media organizations, led by the International Consortium of Investigative Journalists (ICIJ) released 12 million confidential files from offshore accounts. Primarily from 14 offshore business service entities, these leaks linked over 330 current and former politicians in over 90 countries with offshore accounts. While it must be emphasized that owning an offshore account certainly does not mean that the owner is engaging in illegal activity, these leaks have increased awareness surrounding the motivations for opening such accounts and the resulting calls, as mentioned above, for closing these kind of loopholes.
With nearly annual leaks, including the Paradise Papers (2017), Panama Papers (2016), Swiss Leaks (2015), and the LuxLeaks (2014), it seems likely that further revelations will follow. Alongside the above, we at Sqope have observed greater demand from financial institutions and others sectors for more enhanced and in-depth due diligence on clients and prospects, as well as partners and potential investors to ensure not only full compliance with local regulations but also avoid reputational damage. In today’s climate, the traditional tick-the-box solutions simply aren’t sufficient, with these increasing the chances for both missed opportunities and overlooked risk. Indeed, while technology is a useful and an essential tool in the kit of any compliance professional, it can’t offer the complete clear picture with whom you’re doing or planning to do business. We see this need also expanding further into sectors that are not traditionally seen as requiring compliance. Indeed, alongside regulations catching up to include other categories of business, such as the art market, companies will continue to voluntarily budget for enhanced due diligence to reduce both their legal and reputational risk and exposure. We have been are proud to offer our clients across sectors a range of custom and boutique solutions for the past 12 years that speak to this ever-growing demand for deep, reliable and comprehensive insights with short delivery times. We look forward to continuing to provide this level of service in 2022.

The Author : Miriam Goldman Epstein Head of Operations