Since the 2008 financial crisis, regulators have imposed an increasing number of monetary fines on financial institutions for failure to comply with anti-money laundering (AML) regulation. According to Fenergo, a financial technology company, between 2008 and 2022, an average of $53.1 billion dollars of fines were emitted by authorities. JP Morgan Chase, UBS, Goldman Sachs, BNP Paribas, HSBC, and Standard Chartered stand out as the banks that have incurred the highest fines.
Biggest AML Fines
Hover your mouse over the boxes
How is the efficiency of the AML system measured?
To understand if AML fines are needed and efficient in deterring money laundering efforts, we must first measure if they have an impact on the AML system in general. Here is where the first hurdle presents itself.In a paper titled “Anti-money laundering: The world's least effective policy experiment? Together, we can fix it,” Dr. Ronald F. Pol, a former litigator and now legal business consultant, points out that there is an absence of specific and measurable crime reduction and prevention objectives since the beginning of the modern AML regime in 1990.
Financial institutions have achieved notable successes in deterring money laundering activities. However, assessing their influence on the overall effectiveness of AML efforts is a significant challenge without defined metrics, whether at regional or international levels. In this context, the impact of AML fines remains uncertain, as the absence of clear success measurements makes it difficult to evaluate their true effectiveness in contributing to the broader AML goals.
What are the reasons that financial institutions are fined for AML failures?
There are a multitude of reasons why regulators decided to fine financial institutions for AML failure. These include, but are not limited to:-
Non-compliance with regulatory requirements: Financial institutions are often fined for failure to comply with AML regulatory requirements, such as failure to properly conduct customer due diligence or to file SARs.
Regulatory deterrence: To motivate banks to prioritise AML initiatives, make robust system investments, and maintain a pro-active approach to financial crime, regulatory agencies impose penalties as a deterrent for banks to ensure compliance.
Enforcement of accountability: Penalties serve as a reminder to banks that they must be vigilant in spotting and alerting authorities to suspicious activity.
Facilitating financial crime: Financial institutions are fined for facilitating money laundering and other financial crimes.
Are AML fines effective?
With no metrics to determine if AML fines have an impact on the AML system’s success in thwarting money laundering, let’s focus on the information that is available.
But do giving these banks a tap on the wrist and increasing their compliance burdens improve the status of the AML system in general? From a confiscation point of view, it does not seem so. There is also the problem of recidivism, or the repeat offending by large financial institutions who often disregard AML rules. Huw McCartney, a professor at the University of Birmingham, states in the Financial Times article that remediation plans put in place by financial institutions following a fine are, “quite poorly enforced and monitored both within the firm and by the regulators themselves.”
Is the ineffectiveness of AML penalties part of a bigger problem?
The ineffectiveness of AML penalties is part of a larger issue that encompasses the entire AML system. Their limited success can be attributed to:-
Vague laws and regulations: many AML law and regulations are often vague and subject to interpretation which makes it difficult for financial institutions to receive the knowledge to implement the procedures correctly.
Inefficient policies: the vagueness of regulations and the knowledge gaps of compliance professionals can lead to inefficient policies, in turn creating voids in financial institutions’ compliance programs.
Little to no accountability: the person(s) behind the financial institutions that have ignored or gone against AML regulations often go unpunished or with minor consequences. This also goes for the senior management and/or board members of the bank.
Appeasement of regulators: most financial institutions implement AML rules to appease regulators but not for the actual endeavour of preventing money laundering. These banks fall into a tick-the-box mentality that does little to improve the AML system as their only worry is not to receive a fine.
Resource constraints: Some financial institutions, especially smaller ones, may face resource constraints that limit their ability to invest in comprehensive AML compliance programs. This can result in a lack of adequate training, technology, or staff to effectively combat money laundering.
Bringing it all together
The world of AML fines is far from straightforward. While regulators have imposed substantial fines on financial institutions over the years, the impact on the broader AML system remains uncertain due to the absence of clear success metrics.
