A period of undeniable change and unparalleled technological development, the 2010’s (specifically from 2015 forward) saw an increasing demand for the development of potential game-changing advancements to everyday business operations from nearly every sector of society. Despite risk management concerns, the greater financial services sector – one that historically relied heavily on pricy, manual, labor intensive processes – too joined in on this technological revolution, ultimately evolving into one of the prime catalysts for more widespread automation. Whether for purposes of slashing costs, increasing financial security for themselves and their customers, ensuring compliance with regulatory obligations, or simply for increasing company-wide productivity, financial institutions small and large have been quick to adopt potent solutions that have been catered to meet their respective needs. This shift has largely coincided with the growing capabilities and efficiency associated with personal electronic devices (smartphones, laptops, etc.) that has had a dramatic effect on both the way consumers choose to interact with their banks, as well as the services offered by banks to their account holders as a result. Yet while the rather convenient “digital banking” process has existed in the United States and beyond for years now, it was not until the onset of the COVID-19 pandemic in early 2020 that this practice developed into a cultural norm – one that is likely to continue on for the foreseeable future.
Despite the significant degree of uncertainty that has surrounded the U.S. in particular in recent months (the onset of the novel Coronavirus coinciding with a unique stretch of civil, social and political turmoil), institutions who chose to invest into the cyber realm in years past have been able to weather the storm brought on by mass closures and stay-home orders better than their counterparts who were slow to adopt financial technology (FinTech). Statistics have shown that along with the cataclysmic rise in unemployment rates seen during the peak pandemic months, there was a nearly symmetrical uptick in online banking and retail usage figures. In regards to online banking, Fidelity National Information Services (FIS), an organization that provides financial products and services to fifty of the world’s largest lenders, noted a roughly 200% increase in new mobile banking registrations as of early April, with mobile banking traffic increasing approximately 85% during that time period.5 Further emphasizing this trend, American Banker cites data from data analytics firm J.D. Power, which has surveyed the effects of coronavirus on consumer engagement in banking. The article notes that “among the four largest banks (Bank of America, JPMorgan Chase, Citigroup and Wells Fargo), use of mobile banking has increased from 63% of customers on average in 2019 to 72%” as of late April.1 Demand for these remote services has been so great in fact, that several of these larger entities including Bank of America, BB&T, PNC and TD Bank had all experienced online outages due to increased traffic since March.5
Regardless of their previous degree of investment into their online platforms/resources, it is safe to say that financial institutions across the globe could never have anticipated changes of this magnitude coming about this quickly. However, with incidence rates of the disease continuing to surge in the United States, one can assume that things will not be going back to the way they were just a few [long] months ago any time soon. In fact, many analysts believe that even when lockdown orders are relaxed across all fifty states and the disease progression slows, this foundational change to everyday life will see U.S. consumers continuing to use their personal devices to handle their finances as opposed to “conventional” means of banking. The data supports these opinions, too. A survey recently run by prominent FinTech company Novantas found only 40 percent of respondents stated that they intend to return to traditional banking at their local branches once the pandemic period ends.
The increased demand for online banking extends far beyond pre-existing accounts however, as there has also been a significant increase in the opening of new accounts online since early March. Needless to say, without face-to-face interaction and with customer service representatives swamped with calls and emails in need of immediate attention, there are many complications that can arise — beginning with the onboarding process. It is no longer a luxury, but a necessity for banks to have a completely automated process for onboarding clients effectively with little to no manpower required. Furthermore, with physical account openings falling by the wayside in today’s complex society, the difficulties for banks in adequately screening potential clients and knowing what type of individuals or businesses that they are really dealing with have increased tremendously – that is unless they were to invest in the aforementioned tech solutions that can do it for them. These programs should include the ability to rapidly and automatically accept or reject business account submissions, while streamlining the collection of all necessary documents/client information consistent with Bank Secrecy Act (BSA) requirements while screening against top global sanctions lists. There is simply no way to keep up with current demand and regulatory compliance requirements without one. The manpower required to deal with so many clients, entering information one entry at a time, and squandering valuable resources on basic data input is no longer a practical way of taking on new customers. The ability to eliminate human error and ensure consistent customer due diligence (CDD) has become paramount for the modern financial entity, one that simply cannot afford to fall victim to financial crime.
Additional issues brought on in this new age of banking include those of compliance and cybersecurity overall. In this day and age, banks need to be more vigilant than ever, as cybercriminals have become increasingly aware of the online banking boom and are searching for ways to profit from it. Security measures like penetration testing (that is, the process of testing a network, specific applications, or other computer systems for potential weaknesses that cyber-criminals and/or fraudsters could maliciously exploit) are likely to become commonplace practices for organizations looking for the most effective avenues to mitigate risk. Also, ensuring that third-party vendors are protecting crucial client information, and employees maintaining optimal know-your-customer (KYC) screening standards when working remotely should become a managerial priority. The reality is that the regulatory infrastructure of more than a few institutions will need to be overhauled to meet these new challenges, which will prove costly in the short term. The pre-existing structure of the average compliance department for financial service providers of all shapes and sizes (banks, credit unions, etc.) coupled with outdated systems simply cannot handle the ever-increasing load of online banking activity from their clients – at least not while maintaining any acceptable level of due diligence – making the adoption of more current practices even more of a necessity.
With so many banks struggling to catch up with onboarding, compliance, and KYC, certain visionary companies are stepping in to meet these evolving demands and fill the void. Compliance solution staples such as DocFox and Global RADAR provide comprehensive services that completely automate the onboarding process while managing client screening with customizable risk rating rules. The company has consistently provided tools that allow for the automatic scanning, analysis, and population of information from financial and personal documents, identification cards/forms, etc., all while allowing banks to keep tabs on their customers with greater ease than ever before via screening processes that also run with minimal-to-no manual input required. They even provide solutions that allows banks to screen high volumes of clients automatically and keep track of any negative media coverage, sanctions lists, blacklists, political affiliations, and more that may be associated with said entity. With the highly-sophisticated exploits of international criminals proving a pervasive threat to the financial health of businesses around the world, banks need to have a way of staying on the offensive in regards to thwarting potential crime and identifying potential hazards associated with their business clients. Being able to mitigate risk, especially during this unprecedented transition period, is crucial.
Estonia Claims Stake in U.S. AML Fines
Martin Helme, the Finance Minister of Estonia, recently announced the intentions of his government to become more involved in United States ongoing investigations into illicit financial activity occurring within the Baltic region, specifically in regards to the penalization process. According to Reuters, Helme recently stated that if “penalties are imposed on banks as a result of the investigations then Estonia wanted to ‘participate as a state in the distribution of fines.’”8 The Republic of Estonia, a northern European country of relatively small stature, has made waves in the realm of anti-money laundering (AML) in recent years as several of the country’s top lenders have become entangled in messy international investigations that have exposed their ties to dirty money. U.S. authorities are currently investigating Demark’s largest financial institution, Danske Bank A/S, whose Estonian branch is said to have acted as a relay center for the transfer of illicit funds from Russia to other European nations, allowing over €200 billion in non-resident money to flow through it between 2007 and 2015. Other prominent regional entities such as Sweden’s Swedbank and Skandinaviska Enskilda Banken AB (SEB), as well as Germany’s Deutsche Bank AG have also been implicated in Danske Bank’s money-laundering scandal.
Nevertheless, Helme’s announcement of his country’s entitlement to the majority of the fines levied as part of any ongoing probes is sure to get a rise out of many a member of the U.S. Justice Department. Helme hopes to see the majority of the funds stemming from these fines, which are likely to be in excess of several hundreds of millions of euros, be returned to the Estonian budget in some way. Global RADAR will provide an update on the U.S. response to the Finance Minister’s statement in the weeks to come.
Deutsche Bank Pays Penalty for Ties to Epstein
Last week, Frankfurt-based lender Deutsche Bank AG agreed to pay $150 million in penalties to settle claims brought forth by the New York State Department of Financial Services (NYSDFS). The New York state regulator alleged that the bank had major regulatory compliance shortcomings, specifically in regards to its relationship with the late American financier Jeffrey Epstein. The New York Times writes that the financial institution allowed Mr. Epstein, a convicted sex offender with a lengthy criminal history, to engage in “suspicious transactions for years, even though Deutsche Bank had deemed him a ‘high risk’ client from the moment he became a customer in summer 2013.”3 Ultimately the state ruled that Deutsche Bank’s New York branch failed to properly monitor Epstein’s activity, which ultimately led to the bank processing millions of dollars via “hundreds of transactions for Epstein that should have prompted more scrutiny, including payments to victims, alleged accomplices, and law firms representing Epstein and the accomplices.”6
As part of the settlement, Deutsche is said to have remained fully cooperative with the U.S. investigation into potential financial misconduct, while also moving to end relationships with other clients deemed “high risk.” In a statement released following the settlement agreement, a Deutsche Bank spokesperson stated that the bank acknowledged their “error of onboarding Epstein in 2013 and the weaknesses in [their] processes” while also adjusting their “risk tolerance” to systematically tackle these and other similar issues.4
Sons of Ex-Panamanian President Face Corruption, Money Laundering Charges
Last week, United States prosecutors formally charged two sons of Ricardo Martinelli, the 26th President of Panama, with bribery and money laundering tied to Brazilian construction company Odebrecht. Arrested in Guatemala, Luis Enrique Martinelli and Ricardo Alberto Martinelli face extradition to the U.S. despite the best efforts of their family to arrange for the legal proceedings to be transferred to Panama. A statement released by the U.S. Department of Justice (DOJ) stated that the “Martinelli sons are accused of having been intermediaries for the payment of about $28m in bribes from Odebrecht to a high-ranking Panama official between 2009 and 2014, the period in which their father was in office.2 The pair are also alleged to have opened and managed secret bank accounts held in the names of shell companies in foreign jurisdictions which were used to receive, transfer, and deliver the bribe payments to Odebrecht, with many of these transactions using U.S. dollars and being made through U.S. banks.7
Odebrecht, one of the most prominent and profitable engineering firms operating in South and Latina America, was one of several companies caught up in the Brazilian state corruption probe coined Operation Car Wash. The multinational scheme saw dozens of companies admit to paying hefty bribes to politicians and government officials in exchange for access to lucrative contracts with state oil giant Petrobas. It is alleged that Odebrecht paid more than $700 million in bribes to facilitate the scheme. In 2016, the conglomerate confessed to engaging in corrupt practices in a total of 12 countries and ultimately forfeited $2.6 billion in fines to U.S. and Swiss authorities as part of their plea deal – the largest-ever global foreign bribery resolution to that point.
- Crosman, Penny. “Digital Banking Is Surging during the Pandemic. Will It Last?” American Banker, American Banker, 8 June 2020.
- “Ex-Panama President’s Sons Charged with Bribery, Money Laundering.” News | Al Jazeera, Al Jazeera, 7 July 2020.
- Goldstein, Matthew. “Deutsche Bank Settles Over Ignored Red Flags on Jeffrey Epstein.”The New York Times, 7 July 2020.
- Pagones, Stephanie. “Deutsche Bank Penalized $150M for Jeffrey Epstein Relationship.”Fox Business, Fox Business, 7 July 2020.
- Sheng, Ellen. “Coronavirus Crisis Mobile Banking Surge Is a Shift That’s Likely to Stick.” CNBC, CNBC, 27 May 2020.
- Stempel, Jonathan, and Tom Sims. “Deutsche Bank to Pay $150 Million Penalty over Jeffrey Epstein, Other Compliance Failures.” Reuters, Thomson Reuters, 7 July 2020.
- “Two Defendants Charged for Their Role in Bribery and Money Laundering Scheme Involving Former High-Ranking Government Official in Panama.” The United States Department of Justice | Office of Public Affairs, 7 July 2020.
- Virki, Tarmo. “Estonia Claims Share of Any U.S. Fines in Money Laundering Scandal.”Reuters, Thomson Reuters, 3 July 2020.