Reports of novel anti-money laundering (AML) and counter-terrorism financing (CFT) regulations coming to the United States, in addition to other measures expected to be announced across Europe, over the next 24 months have made headlines throughout the financial realm in recent weeks. With new reporting requirements for identifying beneficial ownership coming into play within the U.S. by January of 2024, compliance departments of domestic financial institutions have already begun the process of updating their respective initiatives to avoid crippling financial penalties for non-compliance. With the international financial sector already heavily scrutinized, the leaders of FI’s small and large have begun to question whether or not they have the resources necessary to meet additional mandates effectively enough to avoid repercussions – this given that many institutions are already struggling to keep up with the current regulatory landscape and their respective duties in this regard. This is further evidenced by the fact that global financial institutions lacking compliance and proper due diligence protocols were collectively fined a staggering $2.7 billion in 2021.
Over the last several weeks alone, multiple institutions across Europe have been hit with enforcement actions for failures related to their performance (or lack thereof) of appropriate customer due diligence and complying with pertinent financial regulations in the recent past. Just last week, the United Kingdom’s Financial Conduct Authority – Britain’s primary financial watchdog – moved to fine British multinational banking stale Barclays a reported £50 million ($56 million USD) for failing to properly disclose financial arrangements payments made to investors from Qatar as payback for their financial crisis-era fundraising bailout efforts.3 The United Kingdom’s Gatehouse Bank was also levied a £1.58m ($1.77m USD) fine on October 14th for shortcomings with respect to adequately investigating customers designated as politically exposed persons (PEPs) – in addition to other significant lapses. Compliance Week reports that In one egregious case, Gatehouse set up an account for a Kuwait-based company (one that should have been viewed as potentially high-risk simply based on their geographic location alone). Rather than taking any extra precautions, the bank did not require the company to provide any information on its customers’ sources of wealth. Over a two-year period they accepted a total of $62 million into said account without properly vetting the origins of the funds. In all, the Financial Conduct Authority said Gatehouse breached four parts of the Money Laundering Regulations 2007 in failing to conduct adequate due diligence on their customers and having inadequate internal controls to rectify the situation (in addition to inadequate compliance staff to perform the work required).2
With enforcement actions of this variety lingering, regulators at the FCA believe that many banks have remained oblivious (bordering on downright arrogant) when it comes to risk management. Business-wide risk assessments reviewed by the FCA have shown “generally poor” results with significant lack of consistency. “We also see instances where there are significant discrepancies in how the rationale for specific risk-ratings are arrived at and recorded by firms. There is often a lack of documentation recording the key risks and the methodology in place to assess the aggregate inherent risk profile of individual customers,” the FCA said in 2021.4
Surprisingly however, one of the largest fines issued in 2022 with respect to counter-terror efforts did not involve a financial firm at all. On October 18th, French multinational building products manufacturer Lafarge SA and its subsidiary were hit with a jaw-dropping $777.8 million penalty after pleading guilty to providing material support and resources to two U.S. designated foreign terrorist groups in Syria. The U.S. Department of Justice (DOJ) found the company sent over $10 million in payments to ISIS and the al-Nusrah Front (ANF) between August 2013 and October 2014 in exchange for permission to operate a cement plant in Syria over this period – leading the firm to subsequently obtain over $70 million in revenue during this time. In a press release published by the DOJ earlier this week, U.S. Deputy Attorney General Lisa O. Monaco stated, “The terrorism crimes to which Lafarge and its subsidiary have pleaded guilty are a vivid reminder of how corporate crime can intersect with national security.”1 She continued, noting “The defendants partnered with ISIS, one of the most brutal terrorist organizations the world has ever known, to enhance profits and increase market share — all while ISIS engaged in a notorious campaign of violence during the Syrian civil war. This case sends the clear message to all companies, but especially those operating in high-risk environments, to invest in robust compliance programs, pay vigilant attention to national security compliance risks, and conduct careful due diligence in mergers and acquisitions.”1
Policy-wise, the EU has been leading the charge for AML and customer due diligence reform over the last few years. And while many of these more recent cases involve overseas names, what seems to still be lacking both domestically and abroad are companies taking these regulations as seriously as they should given the destabilizing effects their individual transgressions can have regionally with respect to terrorism exploits as well as on the global financial system. With each piece of new legislation that is published, the battle for non-compliant banks draws even further uphill. And with the Lafarge case as proof, international regulators have their sights set on cracking down on other, non-traditional means of money laundering and funding of terrorism.
- “Lafarge Pleads Guilty to Conspiring to Provide Material Support to Foreign Terrorist Organizations.” The United States Department of Justice, 18 Oct. 2022.
- Nicodemus, Aaron. “Gatehouse Bank Fined $1.77m for Inadequate Customer Due Diligence.” Compliance Week, 14 Oct. 2022.
- White, Lawrence. “UK Watchdog Fines Barclays $55 Mln for Fees Paid in 2008 Fundraising.” Reuters, Thomson Reuters, 21 Oct. 2022.
- Wolcott, Rachel. “AML Efforts of European Banks Hampered by Deficient on-Boarding.” Thomson Reuters Institute, 26 Sept. 2022.