The global war on money laundering may be failing. It is time for governments, banks and law enforcement authorities to put their heads together and ask why the effort put in to fighting financial crime often fails the test of effectiveness.
A local example of this failure was the shocking operations report submitted by EY on Satabank. EY had been appointed to administer the affairs of this bank after the European Central Bank withdrew its banking licence in June 2020. Its report confirms how Satabank’s anti-money laundering programme was not fit for purpose.
Some would argue that regulators have, in fact, sanctioned large international banks because of failures in their anti-money laundering regimes. However, the United Nations Office for Drugs and Crime has estimated that just 0.2 per cent of the proceeds of crime are seized. The success rate of money-laundering controls in small and large banks scarcely amounts to a rounding error in criminal accounts.
The failures of most anti-money laundering programmes are easy to identify but very difficult to prevent. One of the most significant failures is the lack of a strong compliance culture within financial institutions, particularly in management.
The European Chief Prosecutor in the European Public Prosecutor’s Office, Laura Kovesi, could not be more explicit when she remarked that “White-collar crimes are underreported, underestimated and often tolerated. Without action (from crime prevention authorities), there cannot be investigations, prosecutions and judgments. We should not rely only on investigative journalists”. Money laundering is one form of white-collar crime that suffers from the failures identified by Kovesi.
A strong culture of compliance must begin from the top and cascade down through all the layers of financial organisations. Certain managers may deliberately turn a blind eye towards suspicious behaviour and transactions in the name of business goals and high gains. They may also treat money laundering fines directed at their banks as trivial and worth paying because the financial results more than make up for them.
A major issue with many banks is their inadequate and confused way of handling client data. Information on clients’ funds in internal systems is often incomplete and outdated. This problem is made all the more complicated by the organisational data siloes that are jealously guarded within financial institutions, which do not usually share their information with law enforcement organisations like the police and anti-financial crime agencies.
Remedying such complications can be costly in terms of effort, money and time. But to make any more progress in the battle against money laundering, it is critically important to invest in better anti-financial crime programmes within private institutions. Criminal organisations are known to hire professional money launderers tasked with subverting anti-money laundering mechanisms. They have detailed knowledge of compliance, anti-money laundering instruments and legal manoeuvres, including what red flags could raise suspicion.
The mindset of regulators and banks needs to change by focusing on the results of their anti-financial crime programmes rather than the activity they record. The positive outcomes of an effective programme should be measured in terms of prosecutions rather than the amount of effort put into it.
Kovesi’s revelation – that of the 2,200 reports received by her office by mid-October from all around the EU, only two came from Malta – shows why the mindset needs to change locally.
And bank directors need to be held accountable for their blind and willing actions towards facilitating money launderers for the sake of higher gains. The notion of “too big to jail” for banks and bankers must end through severe punishment that goes beyond fines.