Strength in Numbers - are AML joint ventures between banks a good idea?
- Codex Compliance
- Sep 28, 2019
- 7 min read
Updated: Oct 1, 2019
They could to be, or could not to be? You get the idea, it’s a question, one I asked myself lately following a couple of recent stories and proposals on the subject. After my first round of hypothetical outcomes, I found it was very likely that, if a murder of banks (my collective noun of choice, it was that or sloth) were JV’d and cooperating, they would all become part of an uber-massive scandal that led to a bazillion euros being laundered leading to further hell on earth. The number to top since Danske took the biscuit with the (alleged/approx) €200 billion of money laundered, just imagine what 3 banks cooperating could achieve, the ability to circumvent is magnified, as is the fallout for a system error or oversight. This approach then, might be asking for (more) trouble! I’m still looking forward to the Danske fine/penalty, and to see how this situation will be handled in regards to prosecutions of individuals - 10 individuals/employees were arrested but whether we will venture into the realms of c-suite accountability and liability is the question, as well as related correspondent parties. And the fine of note as always is expected to be from the US regulators, let’s hope the local authorities (Danish, Estonian, UK, German) get in on the action for Danske and Swedbank - but that’s a different story - other than they are two of the entities looking to join forces.
Another different story is Estonia coming out on top of the Basel AML controls table for 2019 (0), considering the nonsense around the Danske scandal, this is what I would call certified bonkers. It wasn’t planned but I’m going to have to digress for a rant. The “Basel AML Index 2019, A country ranking and review of money laundering and terrorist financing risks around the world”, notes that “Estonia has been subject to recent criticism of its effectiveness in preventing ML” and that “the data does not reflect the risk of Estonia’s geographic proximity to Russia and the issues that may be associated with this. Estonia has been labelled as one of the first ports of entry for Russian money launderers wishing to gain access to the European financial market”. Sooo, regardless of the noted and massive failures in enforcing their well regarded and comprehensive AML framework, being involved in the biggest known money laundering scandal of recent times, and being known as a conduit for dirty money, they get first place. I think this counts then, as one of those tick box exercises, that don’t really mean a damn thing. They even outline the risk methodology, when quite obviously they haven’t accounted for some of the actual risks, and known weaknesses. Is this then, the perfect example of not enforcing regulation/laws making them absolutely pointless and therefore making the index an absolute exercise in academics and practical insignificance. Have I missed something here? Someone straighten this out if I’m mistaken, which I hope I am. Otherwise it sums up the whole global AML effort perfectly, it’s not just a few sandwiches short of a picnic, it’s opening the picnic basket and finding the stunning Versace cutlery and crockery but no sandwiches, pork pies, falafals wraps or any food at all. End of digression, back to the JVs.
Standards need to be extremely high and actually risk based, not just a bingo scorecard.
The first joint venture I came across includes Danske Bank A/S, DNB Bank ASA, Nordea Bank Abp, Skandinaviska Enskilda Banken AB, Svenska Handelsbanken AB and Swedbank AB as equal shareholders (1). Danske and Swedbank have struggled for years to get on top of their AML programs, and they still haven’t (2). Nordea has recently run into financial crime compliance problems as well (3). As with any kind of merger the due diligence process and assessment of each party and their inherent risks and policies will be key. Standards need to be extremely high and actually risk based, not just a bingo scorecard. The poor track record of these bigger banks is cause for concern, without having reconciled their own problems, they will look to create a new entity to cover all bases. They will combine to create a party that looks after the CDD and AML for all 6 entities, so if it works it will be fantastic. If it doesn’t work, then every bank in the venture will be at risk, the stakes are very high.
With country FIUs doing the job of consolidation and investigation of financial crime information is the JV idea a required one, will it improve the situation or is it just additional kerfuffle adding to the existing chaotic fumbling? An idea that looks good, but might not be for best. Another box ticking exercise, but this time with fancier more appealing boxes, and a potentially perilous escalation of the risk if there were a breach or scandal. Essentially it could just be a cost saving exercise, without any regard for materially improving standards to any significant level, only to meet the low bar they have previously failed to reach.
The dutch have also made the claim to be embarking on a joint mission against financial crime (4), ING Groep NV, Rabobank and ABN Amro Bank are amongst the known parties, they’ve all had recent AML failures (5). It will be interesting to see how this works, and works out in relation to the different approached the Nordic and Dutch banks take, and if anyone else follows suit. In theory, it should increase the ability to find suspicious transactions and assist with client due diligence.
It is true that it’s all speculation at the moment, we don’t know the operational details of these JV entities. I suppose they will be dealing with all the on-boarding for the member banks, with the transaction monitoring, and investigation of any Suspicious Activity Reports (SAR) / Currency Transaction Reports (CTR). Any red flags or suspicious activity that crosses between the banks can then be more efficiently analysed and escalated with a greater degree of certainty. If all goes to plan, from the customer/clients, this seems like a win win, quicker on boarding, and comfort in the fact that there is more information immediately available to fight financial crime.
From the banks perspective, they might well save money, they can pool resources, and expertise. It again could be a win win. Is the client already onboard at Bank A, then we can rely on their KYC (as they all have the same very high standards and a reliance agreement in place), how nice and convenient. It saves time and money, and is mutually beneficial, unless they miss something at on boarding, then they’ll be back in the naughty corner.
if the red flags are missed and the reports aren’t made, the bad guys have a more robust framework for laundering at their disposal.
Another potential benefit comes in relation to SAR filing and the efficacy of the process and information. In some areas SAR/CTR filings have suffered from a variation of the Goldilocks problem, being either too many filed without proper consideration or research being done, or a distinct lack of filings. Will the JV bring the just right effect? Again though the flip side is, if the red flags are missed and the reports aren’t made, the bad guys have a more robust framework for laundering at their disposal.
With the Nordic group slating 2020 for the kickoff of their JV (initial rumours began in 2018), we will soon see what kind of infrastructure and approach they bring and how much value there is in this new JV movement. With almost all the banks involved, having been caught up in a financial crime related scandal at sometime or the other the dynamic of the relationships and trust between the joint parties might be an interesting obstacle. If one of these banks can't keep on top of their anti-financial crime obligations how will bunching them together help at all? Will it be a case of too many crooks, I mean cooks!
Personally, and yes I’m a radical skeptic, but this looks like a cost saving measure rather than a serious move toward fighting financial crime - now I wonder if it will even be that or if via this avenue they throw even more money at the problem. Will it be a single FIU for all parties in the JV, that would make sense and numbers, though any slip ups or oversights might lead to their collective woes increasing exponentially. The issue of trust in the financial system and the fight against AML are at a low point for me. This is a kind of pseudo self regulation manoeuvre that just isn't going to do much good as the simple fact is that banks can't be relied upon to really lead the way in fight against financial crime.
The recent "Report from the Commission to the European Parliament and the Council - on the assessment of recent alleged money laundering cases involving EU credit institutions" (6), suggests, and I think rightly, a move for "...transformation of the Anti-Money Laundering Directive into a Regulation, which would have the potential of setting a harmonised, directly applicable Union regulatory anti-money laundering framework should be considered." There is no panacea for this and one that comes close is surely not going to be a localised effort by a few shabby, sub-par outfits trying heroically to make amends by proposing to build a juggernaut out of papier-mache. If the EU is to be anything useful outside of trade agreements, a switch to ML regulation with some serious improvement in real world cross border controls, reporting and risk management is the way forward. So, strength in numbers is key and could work but the number isn't 6 or even 27, it's around 190 or so.
Al.
#moneylaundering #aml #kyc #duediligence #antimoneylaundering #financialcrime #banks #basel #dirtymoney #thedirtstring #EU #Europe #JointVenture #knowyourcustomer #Nordea #ING #Danske #Swedbank
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