A recent report in June 2011 by FSA, identified serious weaknesses in the management of important compliance requirements, across a wide range of banks and financial institutions.
Specifically, with regard to client identification issues, PEP handling, correspondent banking and wire transfer activity, the Report found significant short-comings in a large number of banks reviewed.
The FSA stated; '... We will, where appropriate, use our enforcement powers to reinforce key messages in this report to encourage banks and other firms to strengthen AML systems and controls and deter them from making decisions which do not take adequate account of money laundering risk...'
That Report should have been an alarm bell in the night for those banks whose failures to provide adequate preventative provisions, bring themselves within this category.
But how has it got to this state of affairs in the first place?
Well, the first people to be blamed are the FSA themselves. They have consistently failed to enforce the AML Regulations with any degree of rigour. They have continued to issue discussion documents when they should have been giving these banks a serious going over for failure to adhere to the Regulations.
This meant that the banks only implemented compliance controls in a fairly piecemeal fashion, and with no great degree of willingness to spend any realistic sums of money on implementing truly effective controls.
Yes, the regulators did issue fines and costs from time to time, but it is pointless fining a bank. They can always pay the fine, and then pass on the cost right back to their customers. If all a Regulator does nothing more than impose a fine which the institute has no difficulty in paying, then they only have themselves to blame for allowing this dreadful state of affairs to flourish. They have always failed to understand the culture of the banks they supervise.
Let us start by recognising the most basic of all truths which attach to the banking sector's willingness to engage voluntarily with financial regulatory requirements - particularly as they pertain to anti-money laundering - they just don't give a damn about it. Consider these quotes from the FSA report;
'... Some banks appeared unwilling to turn away, or exit, very profitable business relationships when there appeared to be an unacceptable risk of handling the proceeds of crime. Around a third of banks, including the private banking arms of some major banking groups, appeared willing to accept very high levels of money-laundering risk...'
'... Our main conclusion is that around three quarters of banks in our sample, including the majority of major banks, are not always managing high-risk customers and PEP relationships effectively and must do more to ensure they are not used for money laundering. Despite changes in the legal and regulatory framework a number of the weaknesses identified during this review are the same as, or similar to, those identified in the FSA report of March 2001 covering how banks in the UK handled accounts linked to the former Nigerian military leader, General Sani Abacha. We are concerned there has been insufficient improvement in banks’ AML systems and controls during this period...'
By far the most egregious however was; '... At a few banks, the general AML culture was a concern, with senior management and/or compliance challenging us about the whole point of the AML regime or the need to identify PEPs...'
What these three statements identify so clearly is that the British banking fraternity have together stuck two fingers up to the law and the regulations which seek to prevent criminal money from being moved through our institutions. It's not an accident, it's not inadvertent, it is deliberate, concerted and done with the most simple motive, greed!
So, what happens when the FSA has been in and conducted an Arrow review? When the glaring lack of any meaningful controls has been identified and highlighted; when the absence of any realistic transaction monitoring IT systems is discovered; when the KYC processes ignore more than they recognise, then there should only be one way forward.
Such an absence of controls is primary evidence of a wholesale policy of deliberate evasion of the law, with the aim of generating even more financial gain, in other words, an exhibition of organised criminality.
That conduct should be treated in the same way as other major organised criminals. The Chief Executive should be invited in to a meeting at the FSA and promised that unless his systems and controls are brought into an acceptable condition within a short space of time, with the proper trained staff to operate them, then he and his main Board will be prosecuted for the failure to implement the necessary degree of controls, and a custodial sentence sought.
This may sound draconian, but I believe that it is the only way to engage the hearts and minds of these executives who are willing to deliberately ignore the law in the name of profit. They have had years to get their act together and they have wilfully ignored the requirements.
So, let them spend some time in Wandsworth. It won't take long for the message to get round the other institutions, which would trigger off a Gadarene-like rush to start to undertake the remedial exercises properly. Such a criminal conviction would disbar these men from any further role in the City or the banking sector, and it would predicate a period of wholesale reform in the boardrooms of every banks in the country.
So, let us hope that those with the power to enforce the Money Laundering Regulations start to view some of the most egregious financial institutions who fail to demonstrate that they are taking the implementation of proper remediation, as the organised criminals they undoubtedly are, and deal with them accordingly. It would be amazing what a few weeks banged up would achieve!