One year ago, the International Consortium of Investigative Journalists (ICIJ), Buzzfeed News and other media organisations implicated major banks in cross-border corruption, reporting on suspicious international financial transactions worth trillions of dollars.
These investigations – known as the FinCEN Files – were based on the leaked suspicious activity reports (SARs) that banks submitted to the US Treasury. Investigative journalists carefully sifted through thousands of such reports and concluded: even if major banks raised red flags, they processed suspect funds anyway. Leaked SARs reportedly show that banks often flagged payments as suspicious way too late and many of the reports failed to properly identify clients because they were hiding behind anonymous companies.
Banks should be the gatekeepers to the global flows of dirty cash. All the while, kleptocrats need the bankers as they seek ways to park their stolen loot safely and secretly. While all of the world’s major banks headquartered in the West have explicit anti-money-laundering (AML) policies, some are more assiduous in enforcing their policies than others. Even before the FinCEN Files, a number of the world’s largest banks whose ATMs you use regularly, have sometimes been caught red-handed laundering kleptocrats’ money – from HSBC to Deutsche Bank, from BNP Paribas to Danske Bank.
It would be misleading to suggest that all and top executives at the world’s leading banks are directly involved in money laundering. However, these banking leaders receive millions of dollars in annual compensation. Their responsibility includes promoting cultures in their banks, whether through speeches and statements, employee training programmes, compensation systems or wider decision-making. The scale of money laundering at some banks and the nature of some of the criminal dealings suggest that the prevailing culture in these banks has, at best, paid mere lip service to anti-money laundering policies.
Executives in banks can be conflicted at times between full compliance to the letter of official regulations with every aspect of sound banking and the large financial incentives they can obtain if they act to boost corporate profits sharply. Cutting a few corners is a constant temptation.
And yet, accountability is rare. The fines that so many firms have paid for wrongdoing often appear as just the costs of doing business, rather than as deterrence for further bad behaviour. Sometimes powerful politicians voice exasperation over the seemingly light treatment given by governments to the biggest banks. Republican Senator Charles Grassley from Iowa was on target when in 2013, as then-chairman of the US Senate’s Committee on Banking, he asked Attorney General in a public hearing: are the banks too big to jail?
Over many years, each new money laundering case brought against one of the West’s largest banks ended with payment of a fine and silence from the guilty party.
No agenda aimed at reforming the system where financial institutions aid and abet kleptocratic regimes can ignore the internal business cultures driving the leaders of mega-corporate institutions. The decisions as to where to do business, and with whom, are all too often based solely on calculations of short-term profit. At too many of these enterprises, senior executives place their bonuses and compensation packages above the interests of their stakeholders and the communities that their institutions are designed to serve.
The world’s leading bankers need to recognise that they hold a public trust, that they have public responsibilities. Their behaviours and the cultures they establish not only influence the health of the world’s financial system, but because they so often aid kleptocratic clients across the globe, they strengthen authoritarianism and increase security risks.
The banks are central players in enabling money laundering, alongside auditors, real estate brokers, art dealers, financial consultants and lawyers. They are today’s enablers and sustainable reform of today’s complex systems of illicit finance, will be possible only when they operate replace a short-term profit maximization culture with one that serves the public interest.
Within this context, these top bankers need to reassess their operations – both legal and, of course, illegal – which fundamentally work to the advantage of kleptocratic regimes and the cronies of the leaders of these regimes. Reaching far beyond compliance and replacing the just-ticking-boxes approach with incentives to embed integrity as part of doing business are essential. Voluntary actions by the big banks, indeed by all major multinational corporations, to counter the avaricious reach of today’s kleptocrats are vital.
Because sufficient voluntary change is unlikely by corporations, and because there are too many other ways that kleptocrats can enrich themselves in Western markets today and find homes for their loot, robust regulations and laws, combined with sharply increased regulatory and legal enforcement, are essential.
Western governments have obligations to ensure that the operations of these institutions are transparent, publicly accountable and honest.
In the United States, Congress’s approval at the start of 2021 of far-reaching anti-money laundering measures to strengthen the government’s enforcement and investigation capacities, together with the Corporate Transparency Act, are rays of hope. They need to be seen as a start toward a quantum rise in funds to support effective governmental actions. They come at a time when the European Commission and the European Parliament are more intensively than ever before grappling with the challenges of grand corruption in the member countries and large-scale money laundering through some of the largest banks. On both sides of the Atlantic, moreover, there needs to be far greater allocations of budget resources to ensure that anti-money laundering can be fully investigated and, where appropriate, prosecuted.
This is an adapted excerpt from Frank Vogl’s forthcoming book The Enablers: How the West Supports Kleptocrats and Corruption – Endangering Our Democracy.