ICT Views

So who pays?

by: (Course Director (AML)) on

The UN Assembly designated 9th December as International Anti-Corruption Day, to raise awareness of corruption and of the role of the Convention in combating and preventing it. This led me to just take some time to consider some key events in 2012.

No not the Olympics, Paralympics, Tour de France, Ryder Cup and beating New Zealand at Twickenham to name some highlights but the tales from the banks. A number of big fines announced in the later part of 2012.


  • Confirms it has settled with the US authorities to the tune of $1.9bn in the largest ever penalty imposed over money laundering irregularities
  • Also commented that it had spent some $290m on improving its systems to prevent money laundering
  • Expected to reach an agreement with the UK's Financial Services Authority shortly

Standard Chartered

  • Fined $100m by the Federal Reserve and a further settlement with the Department of Justice of $227m. It had already paid $340m to New York's Department of Financial Services
  • "In the more than five years since the events giving rise to today's settlements, the bank has completed a comprehensive review and upgrade of its compliance systems and procedures," the bank said
  • It will also install a monitor for at least two years who will evaluate money-laundering controls at the bank's New York branch and report directly to the regulator


  • £290m fine over Libor fixing (and senior managers not taking bonuses). £59m of this fine was from the FSA in the UK

So what has been the impact for these banks?

This is difficult to assess but I am not sure any of the banks have lost major amounts of business. Most commentators seem to indicate that the reputational impact will not be as dramatic as perhaps it should be. Apologies have been made often citing reference to events that happened some time ago and that they are now fixed are. The financial penalties appear to have been absorbed as a cost of doing business.

  • Whilst significantly higher than expected, HSBC’s $1.9bn fine must be measured against the bank (largest in Europe by market capitalisation) with pre-tax profits of $12.7bn reported for the first six months of 2012
  • Standard Chartered shares rallied after it agreed to pay $340m (£217m) to New York regulators to settle claims that it hid transactions with Iran

If the authorities are committed to stamping out particularly money laundering and terrorist financing we clearly need to have the penalties imposed that do make an appropriate impact on the errant organisations.

That said, the other side is that where penalties would make a significant impact on the banks then what their options? In the current times we continue to hear how difficult it is for the banks to maintain capital ratios so would substantial fines lead banks to pass the burden onto investors. The likely impact would be of customers being asked to pay more for banking services to ensure shareholder returns are maintained.

This creates a vicious circle with no real winners. And what about the culture in banks?

In an exchange with MP Mark Garnier during a recent session of the Banking Standards Commission investigations, Mike Walters, head of Barclays compliance department responded to a comment that the banks should be broken up by stating “I was in charge of compliance. I wasn't in charge of culture, that is the responsibility of everyone at Barclays".

I agree entirely but in my view the challenge is for those at the top to actively demonstrate their commitment to the appropriate culture.

Global Financial Integrity has noted that fines, monitoring, and deferred prosecution agreements are likely not adequate to ensure compliance. Heather Lowe, GFI’s legal counsel and director of government affairs, said “At some point, guilty individuals and companies are just guilty. Law enforcement has to stop handing out get-out-of-jail free cards. Banks can’t be too big to prosecute, and the people responsible for making the decisions to launder criminal money must be held legally accountable.

My last ponderings for 2012?

dollarsThe regulators now have a lot of money. What are they going to do with it? What do you think they should do with it?

UK Chancellor George Osborne said in June “Under the previous Government’s regime fines paid to the FSA are used to reduce the annual levy other financial institutions are asked to pay". I am far from convinced that in all case this is the best use of the money. We are considering amendments to the Financial Services Bill that will ensure fines of this nature go to help the taxpaying public not the financial industry.”

At the Tory party conference in October David Cameron said: “We don’t think it’s fair that the fines from scandal-hit banks go back into the banking industry. That is why we are directing £35m from banking fines this year to supporting our armed forces, veterans and their families”.

So what will 2013 bring?

Categories :



Comments closed


Tel: +44 (0)121 362 7534

Blogger facebook LinkedIn Twitter youtube google + Trust Pilot

© 2017 – International Compliance Training Ltd, a division of Wilmington plc. International Compliance Training Ltd, is a company registered in England & Wales with company number 4363296 GB. Registered office: Wilmington PLC, 5th Floor, 10 Whitechapel High Street, London. E1 8QS VAT NO.GB 899 3725 51