Bank Costs Climb As Regulators Push For AML And Sanctions Compliance

As government financial regulators push harder for compliance with sanctions and anti-money-laundering laws, some of the world’s biggest banks are beginning to disclose the costs of meeting those demands, according to the Financial Times.

HSBC, which paid $1.9 billion in 2012 to settle charges U.S. and U.K. regulators’ charges that it handled millions of dollars in drug-trafficking money and also transmitted funds to Iran and other countries under sanctions, said it is spending between $750 million and $800 million this year on its compliance and risk program — up $150 million to $200 million from last year. The amount is expected to rise further in 2014.

Standard Chartered Bank, which paid a $667 million fine in 2012 for violating sanctions and agreed this week to pay a $300 million fine for failing to monitor questionable dollar-clearing transactions from Hong Kong and the United Arab Emirates, said regulatory costs are adding $100 million to $200 million to its costs every year, about a 1 to 2 percent increase. Standard Chartered has doubled its financial-crime staff and boosted compliance staff by 30 percent in the past year.

BNP Paribas, which paid a $8.9 billion fine in June after admitting it violated sanctions on Sudan, has increased its compliance staff to 1,600 in the past five years, a 40 percent rise, and the bank expects to add more. And Australia’s Macquarie Group said that its direct compliance costs have tripled since 2011 to $300 million.

The run-up in bank compliance spending comes at a time when regulators have shifted their tactics to reduce backsliding after violations are found. In the past, banks that failed to meet the non-monetary part of regulatory settlements have often returned to business as usual without much of a rebuke, according to the New York Times.

But now New York’s state Department of Financial Services (DFS) is installing independent monitors who dig into payment data after a bank has agreed to a settlement. That’s how the questionable transactions at Standard Chartered were discovered, even though they were unrelated to the specifics of the original settlement, triggering this week’s $300 million fine.

The head of the DFS, Benjamin M. Lawsky, is also reportedly considering routine double-checks of banks’ cross-border payment transactions for signs of money-laundering. That could set up other actions against Wall Street banks, the Times reported.

Deutsche Bank, Societe Generale, UniCredit, Credit Agricole and Commerzbank all say they currently face U.S. regulatory investigation for violating sanctions, according to the Financial Times.

Along with the hard costs of increased regulatory scrutiny, banks are also seeing declines in business that are harder to measure. Standard Chartered is shutting down most of its business in the U.A.E. HSBC has withdrawn from 11 countries and sold 74 businesses since 2011, and was accused of being anti-Muslim after the bank notified mosques and Islamic charities in London that their accounts were being closed last month.

JPMorgan has been accused of discrimination for shutting down the accounts of current and former government officials including Jose Antonio Ocampo, a respected economist and former finance minister of Colombia.

Complicating matters further, some large banks are now being squeezed between regulators and the courts. In April, Africa’s largest remittance-payment provider, Dahabshiil, won a court injunction against Barclays after the bank announced last year that it was shutting down accounts for almost 250 clients doing money transfers in Africa. Barclays said in a statement that it took the action because the accounts did not have “proper checks in place to spot criminal activity and could therefore unwittingly be facilitating money laundering and terrorist financing.” The bank reached a deal to resolve that dispute last week.