Global Financial Institution Penalties on the Decline

Enforcement actions to financial institutions and their employees totalled $5.4 billion for non-compliance with Anti-Money Laundering (AML) and data privacy regulations, in comparison to a staggering $10.6 billion in 2020 – the year that saw the culmination of several regulatory investigations into the 1Malaysia Development Berhad (1MDB) scandal. The fallout from the scandal continued to influence enforcement activity in Malaysia in 2021 with AmBank Group agreeing to pay a $698.3 million settlement to the Ministry of Finance for its role in the violations.

Notable enforcement actions in 2021 included a $2.03 billion penalty issued to a major Swiss bank by the French Court for historic tax fraud. In the US, regulators issued $673.2 million in enforcement actions to foreign banks, including a $100,000,000 fine to the UAE’s oldest private bank, Mashreqbank PSC, for illegally processing more than $4 billion of payments linked to Sudan.

The total volume of fines levied to financial institutions for compliance breaches was approximately 176 compared to 760 in the same period the year prior. The average fine value for AML-related compliance breaches issued to financial institutions in 2021 was $34.4 million. EMEA saw the single biggest regional increase in the value of financial penalties from just over $1 billion ($1,005,499,683) in 2020 to $3.4 billion ($3,448,452,122) in 2021. The global research comes just weeks after two major UK headquartered banks were fined $85 million and $350.3 million for AML failures. One of the UK banks was fined for serious weaknesses in its anti-money laundering controls over an eight-year period, which included ineffective transaction monitoring systems.

2021 also saw the rise of non-banking financial firms being targeted by regulators, such as virtual asset service providers. Crypto-trading platform, BitMEX and crypto payments provider Bitpay, were fined a combined amount of $100,507,375 for failing to comply with money laundering obligations.

Financial institution employees continued to face regulatory scrutiny in 2021 with 16 individuals fined $16.5 million for their role in AML-related compliance breaches. In Bahrain, the High Criminal Court went as far as sentencing six Future Bank employees to prison with a fine of $2.7 million each for their role in Bahrain’s largest money laundering case in the history of the state.

Data privacy fine values were down by 82% at $17.4 million, the majority ($11.5 million) of which were for GDPR breaches in Europe.

Commenting on the findings, Rachel Woolley, global director of financial crime at Fenergo, said:

The decrease in fines in 2021 is largely attributed to a reduction in the number of multi-billion-dollar fines compared to previous years. The pandemic has also impacted regulatory investigations; regulators weren’t able to initiate as many on-premise investigations in the last two years which has likely had a knock-on effect on enforcement actions. Trends identified in our research, as well as recent financial crime scandals, suggest that financial institutions aren’t adequately equipped to manage the financial crime risks to which they are exposed. Without effective AML/KYC systems and controls that allow firms to not only know their customer and the associated risks, but also understand their behaviour throughout their lifecycle – the door will be left open for criminals.

With criminals using more sophisticated methods for hiding illicit gains such as crypto currencies and other virtual assets, the clock is ticking for financial institutions to adopt technology that provides a holistic view of customers and the risk they potentially present, as well as identifying activity and behaviours that could indicate criminal activity. Until they do, we will continue to see damaging enforcement actions being handed out by regulators.

ENDS

Interested in hearing more about our findings? Join us for our live webinar discussion on Wednesday 23rd February with a panel of experts. Details here.