Yet, despite all the best efforts of regulators and organisations themselves, financial crime is still happening all around the world.
A report published by Fenergo towards the end of 2018 revealed that there were $26bn (or £20.2bn) in fines related to Anti-Money Laundering (AML) legislation, Know Your Customer (KYC), and sanctions regulations in the decade following the financial crisis.
In Europe alone, there were 83 fines issued, coming to a total of $1.7bn (approx. £1.3bn). The majority of these fines were imposed by the UK’s Financial Conduct Authority (FCA). The UK was the most active issuer of AML and KYC fines in the whole of Europe, accounting for 24%. The average fine for the whole decade sits at $15.7m (approx. £12.2m).
HM Revenue and Customs (HMRC) oversees compliance with AML regulations by businesses, and in the period of 2017-2018 they fined companies a total of £2.3 million - which is double that of the previous year when £1.2m of fines were issued. On average, companies were fined just under £2,500 per breach. Many of the fines were issued to companies in the property sector.
The HMRC introduced a penalty administration charge for all AML Supervision penalties issued from 25 July 2018. The HMRC will charge up to £1,500 in addition to the penalty for breaches of the Money Laundering Regulations such as failures for customer due diligence, risk assessment, policies and procedures, and record keeping.
A rundown of the biggest ever fines in financial crime
Biggest foreign bribery case: Odebrecht ($2.6bn/£2.2bn):
In December 2016, Brazillian engineering giant Odebrecht and it’s subsidary, Braksem, admitted bribery to the tune of £553m, in which the US Department of Justice called “the largest foreign bribery case in history”.
Odebrecht paid off politicians, political parties, officials, lawyers, and bankers to secure lucrative contracts in Brazil and abroad - covering 12 nations in total. Remarkably, they even created a special department to manage its dodgy deals, named the Division of Structured Operations, leaving prosecutors speechless.
In April the following year, Odebrecht was formally fined $2.6bn (approx. £2bn) by a US judge. The ripple effects have been far-reaching, with the scandal implicating a staggering number of Brazil’s senators and governors, as well as forcing the resignation of the president and the imprisonment of Ecuador’s vice-president.
Biggest UK criminal enforcement fine: Rolls-Royce (£671m)
In 2017, Rolls-Royce were forced to pay £671m to settle corruption cases with UK and US authorities. The UK’s Serious Fraud Office (SFO) found a number of cases of conspiracy to corrupt or failure to prevent bribery in at least a dozen countries, spanning a shocking 25-year period.
The aerospace firm were ordered to pay £497m to the SFO, as well as £141m to the US Justice Department, and a further £21.5m to Brazilian regulators. The cases detailed by the SFO included paying for employees of a Chinese airlines to attend a two week MBA course at Columbia University with lavish accommodation and extra-curricular activities while negotiating the sale of T700 engines.
The firm has since apologised and promises they now have a zero tolerance of business misconduct of any kind.
Most significant FCA penalty: Deutsche Bank (£163m):
2017 didn’t start off well for German lender Deutsche Bank, after the FCA levied £163m in fines against them. This marked the most significant penalty the FCA had ever applied.
The FCA found the firm had exposed the UK financial system to significant risks of financial crime by failing to oversee the formation of new customer relationships and the booking of global business in the UK. Their lack of due diligence led the bank to be used by unidentified customers to transfer approximately $10bn from Russia to offshore bank accounts.
Specifically, the FCA accused Deutsche Bank of performing inadequate due diligence, failure to ensure responsibility for KYC obligations, using flawed risk rating methods, and having deficient and inadequate AML policies, procedures, IT infrastructure, and systems for detecting suspicious trades.
Largest FCA breach of rules fine: Rio Tinto (£27m)
In 2017, the FCA delivered a £27m fine to Rio Tinto for violating its Disclosure and Transparency rules. The mining giant failed to carry out an impairment test and to recognise an impairment loss on the value of the mining assets based in Mozambique. Had they complied with their obligation to carry out the test, the loss would have been required to be disclosed at the time of its 2012 half-year reporting. The firms financial reporting was therefore deemed inaccurate and misleading.
The fine delivered to Rio Tinto is the largest ever fine imposed by the FCA for breach of rules. But incredibly, it could have been a significant amount more. As Rio Tinto agreed to pay an early settlement, they were given a 30% reduction in penalty. Had they not been given this discount, the FCA would have imposed a much higher financial penalty of £39m.
History's biggest money laundering scandal: Danske Bank
Possibly the largest ever money-laundering scandal in history is unfolding right now in the European Union. The Estonian branch of the Danske Bank from Denmark has been rocked by allegations that they have laundered up to €200bn over a nine-year period. The scandal involved over 32 currencies and companies in Cyprus, the Seychelles, British Virgin Islands, and the UK. According to analysts, the bank is facing fines of up to $8bn (approx. £6.2bn).
Although the scandal forced the resignation of Danske’s chief executive, Thomas Borgen, the bank is still very much in business. What will happen next is yet to be seen, but it may be that senior executives face criminal investigations. According to anti-corruption expert Nienke Palstra, “Europe has a major money-laundering problem. Until we see senior executives held fully accountable for criminal wrongdoing and serious fines for the banks involved, this kind of scandal will continue for decades to come.”
Interestingly, Deutsche Bank has been drawn into the Danske Bank scandal. According to Danske Bank’s biggest whistle-blower, Howard Wilkinson, more than half of the $250bn in suspect funds handled by the bank was funnelled through none other than Deutsche Bank.
Biggest ongoing corruption case: Shell & Eni
Oil giants Shell and Eni have been accused of bribery in what is being called one of the biggest corporate corruption scandals in history. As well as facing huge penalties, if found guilty, senior executives at both companies could also face jail for allowing the deal to be struck under their watch.
The case dates back to 2011, when the two companies paid $1.1bn for an oil block located off the coast of Nigeria. But shockingly, instead of the money going to the Nigerian people, it went to convicted money launderer Dan Etete and his secret company, Malabu Oil and Gas. Shell and Eni were eventually forced to admit that they knew the money would end up in private hands but went ahead with the deal regardless.
The trial began in Milan in September 2018, and there has since been some noise of a potential out-of-court settlement. We’ll continue to report on the scandal to keep you up-to-date.
What else lies ahead?
Regulators are having to become more stringent and deliver bigger fines than ever in their endeavours to win the global fight against financial crime. The Fifth Money Laundering Directive (5MLD) came into force in January 2020, with 6AMLD at the end of the year. And the appetite for financial sanctions continues to grow.
However, it’s not just monetary fines that companies need to be concerned with. In further attempts to crack down on financial crime cases like money laundering and bribery and corruption, the senior executives responsible for ensuring compliance are increasingly facing the threat of jail time. Repercussions are set to not just be felt at the company level, but at the individual level too.
With the FCA in the UK issuing a record £392m in fines during 2019 and just four companies sharing £100m in penalties during 2020 the costs of failing to mitigate risks is clear.
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