Too Big to Fail or Too Protected to be Regulated
Global banks moved more than $2 trillion in payments over a two-decade period were believed to be suspicious reported by the International Consortium of Investigative Journalists based on thousands of leaked documents from the U.S. Treasury Department’s arm that investigates money laundering (https://bit.ly/3iRMmfF). It is surprising (or maybe not) to see big banks like JP Morgan, HSBC, Standard Chartered Bank, Deutsche Bank and Bank of New York Mellon in the offenders’ list. It is to be believed that these banking giants are said to have “kept profiting from powerful and dangerous players even after US authorities fined these financial institutions for earlier failures to stem flows of dirty money.” In some cases, the banks kept moving the illicit funds even after they were warned of criminal prosecutions. This gives us a moment to ponder, are Too Big to Fail Banks are also Too Protected to be Regulated.
The Financial Crimes Enforcement Network (FinCEN) (https://www.fincen.gov/) which is a bureau of the United States Department of the Treasury that collects and analyzes information about financial transactions to combat domestic and international money laundering, terrorist financing, and other financial crimes investigated big global banks’ transactions from 2000 to 2017 and found the free movement of illicit money across the globe. In the age of Artificial intelligence, advance Financial Technology (FinTech) applications, sophisticated Know Your Customer (KYC) tools showed that “Big Daddy” of banking industry blindly moved cash through their accounts for people they can’t identify (breach of KYC requirements), failing to report transactions (loose reporting standards); doing business with notorious clients who are entangled in financial frauds and public corruption scandals giving rise to a plethora of money laundering (ignoring Anti Money laundering -AML rules).
One of the biggest wrongdoer JP Morgan, the largest US Bank having US$2.8 trillion in assets, moved money for people and companies tied to the embezzlement of public funds in Malaysia, Venezuela and Ukraine as per FinCEN documents. Among the transactions, including infamous Malaysia’s 1MDB scandal where the banks moved US$1 billion for the fugitive financier Jho Low, the fugitive financier behind Malaysia’s 1MDB scandal. The leaked documents also showed that more than $2 million for a young energy mogul’s company that has been accused of cheating Venezuela’s government and helping cause electrical blackouts that crippled large parts of the country.
Even though the same bank promised to the financial regulators to improve its money-laundering controls as part of settlements it reached with the banking authorities in 2011, 2013 and 2014, there is no ending to these tainted transactions but also with increased volume.
HSBC Plc (Another top 10 bank) with US$2.5 trillion in assets, recorded almost US$4.5 billion in suspicious transactions where they continued to move illicit funds for suspected Russian money launderers and a Ponzi scheme under investigation in multiple countries. The bank’s Hong Kong officer is also said to have processed more than USD 900 million in transactions involving shell companies linked to alleged criminal networks. This all continues to happen despite a 2012 deferred prosecution agreement with US authorities.
The question here is why the banking goliaths continuously ignore the regulators warning and why there is no mechanism to stop their illicit activities. As a general bank user, it gives us a moment to ponder if all these numerous regulations are just a show-stopper or an illusion for the bank users to give false hope of security and trust where the repeat offenders continue to indulge in illicit activities. Rules are only meant for small players and more stringently applied to small-time financial services users.
Money laundering has become a nemesis for the growth and economic development robbing innocent population of developing and underdeveloped economies and we always blame the corrupt government and politicians for this but looking at this revelation of FinCEN, banks involved in money laundering should be equally blamed for this. It is imperative to understand that laundered money helps sustain criminal activities, terrorism which plays a bigger role in destabilizing nations across the globe. This has been also rightly put by Paul Pelletier, a former senior U.S. Justice Department official and financial crimes prosecutor, “By utterly failing to prevent large-scale corrupt transactions, financial institutions have abandoned their roles as front-line defenses against money laundering.”
Regulations have failed to stop these unlawful activities or may be implemented too loosely where top officials in big banks can approve of these activities without the fear of getting caught or brought to justice. For instance, Deutsche Bank (reported to have US$1.3 trillion of suspicious activity reports found in the FinCEN Files) managers, including top executives, had direct knowledge for years of serious failings that left the bank vulnerable to money launderers. Documents show two warnings sent to committees that included Paul Achleitner, Deutsche’s chair, and one sent to the bank’s supervisory board but still, no corrective actions were taken.
In the nutshell, these revelations are prompting even small players to get involved in these fraudulent activities making the issue more severe and complicated. Until and unless a strict message is sent out by the regulators and authorities financial institutions will keep on involving in activities which are not good for nation, society and individuals. The message should be clear, Too Big to Fail is true but not too big enough and protected to be prosecuted and questioned for wrongdoings. Hopefully, regulators and authorities can instill the confidence back in the users of the financial services.
