Security & Fraud

Bank Fines On Money Laundering Spotlight KYC Urgency

Danske Bank is among only the latest headlines tied to money laundering. However, according to one recent report, 90 percent of Europe’s biggest banks have been sanctioned for money laundering. As more firms embrace cross-border business, KYC, AML and onboarding, scrutiny gains urgency, too.

Danske Bank is only among the latest headlines in money laundering. The impact has been far-reaching and long-lived when it comes to money tied to illicit activities and making its way across foreign banks. That money moves from person to person (P2P) or business to business (B2B).

As noted this week by Fortytwo Data, 18 out of 20 of the biggest banks in Europe — that’s 90 percent — have been sanctioned in the wake of money laundering activities. The measurement stretches back a decade, indicating that the problem is not new.

Fortytwo Data, which offers an anti-money laundering (AML) platform, said money laundering is a growing problem across Europe. The roster may read like a who’s who of financial services (FinServ) spanning the U.K. — where Barclays and Lloyds have been tied to sanctions. The firm also noted that French names like BNP Paribas (fined the French equivalent of $8.9 billon USD in 2014), Crédit Agricole Group (fined the equivalent of nearly $800 million this year) and Société Générale have been hit with money laundering sanctions.

For its part, Fortytwo Data noted that FinServ firms must embrace AML technology. However, beyond the use of technology (which has its own costs), failure to uncover laundering activities can embolden the bad actors. Consider Danske Bank, for example, and the fact that more than €200 billion ($229 billion USD) were laundered across a single Estonian bank branch for almost a decade. The Estonian branch news stretches back over a year, and a U.S. Department of Justice (DOJ) investigation has been announced.

Overall, the International Monetary Fund (IMF) has estimated that as much as $2.1 trillion is laundered illegally. A global problem to be sure, and as The Wall Street Journal reported last month, the repercussions are global, too. To name recent stats, ING paid a record fine of about €775 million and, in the U.S., more than $23 billion in fines have been levied.

The premise of money laundering — to mask criminal behavior and disguise funds tied to that behavior — may have an impact on B2B. That’s because shell companies are now among the more popular conduits of money laundering. Shell companies, in these instances, are fake firms that bring in money, but may not provide goods or services. Monitoring transactions is one thing, but as Foreign Policy has noted, as much as 95 percent of alerts that are tied to suspicious activity (such as complex or outsized transactions) are false-positives.

The chain of commerce itself — far-flung across borders and between merchants or enterprises — may conceal money laundering. In a series of posts from the Association of Certified Financial Crime Specialists (ACFCS), transactional organized crime groups have latched onto the growth of credit cards in B2B payments, with merchant-based money laundering taking root, too. In one example, think of a supermarket that makes high-value transactions from merchants across the border … using a card. However, a deeper dive finds the card is not being used to make purchases for standard, everyday items like meat, produce or dairy — alerting some further examination.

Knowing the business with which one transacts is crucial in corporate banking, but that goes beyond mere data validation, especially as business is done online. In one recent PYMNTS interview, Jose Caldera, chief products and marketing officer of IdentityMind, said that if done well, the efforts — tied in part to making sure a financial institution (FI) is allowed to do business with a customer — can be streamlined.

Caldera said there can also be an element of portability. FIs can leverage the history of a customer’s attributes and feedback from a trusted third-party source, forming a trustworthy digital identity and cutting down on the know your customer (KYC) process.

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