Firms paid $10.4bn in fines over the last year for breaking money laundering, privacy and financial regulations

From: RegTech Analyst

The total volume of fines levied against firms for breaking money laundering, data privacy, MiFID and know your customer rules jumped by 141% and amounted to $10.4bn in total so far this year.

Over the period, 198 fines were issued, according to new research from crime-fighting RegTech Fenergo.

At the same time, the average value of enforcement actions against financial institutions for AML-related compliance breaches dropped by 44% compared to that of 2019.

“2015 was a record year for enforcement actions but 2020 has the potential to match or top that year’s total if significant investigations are concluded by the end of the calendar year,” said Rachel Woolley, global director of financial crime at Fenergo.

“There have been two notable shifts, APAC has overtaken the US in terms of the value of enforcement actions for the first time since 2015 – driven by recent FATF activity and the repercussions of the 1MDB scandal, and there has been an increased focus on individuals being penalised than we have seen in previous years.

“In addition to imposing penalties on financial institutions, regulators and authorities in China, the UK and the US have held individuals accountable for compliance failings. While banks may hold reserves explicitly to settle enforcement actions, individuals will suffer a far greater personal impact. This along with greater whistleblowing protection and incentives will make a difference in tackling the industry-wide issue of financial crime.”

One notable case was the landmark action against Goldman Sachs for its evolvement in the 1Malaysia Development Berhad (1MBD) scandal, which landed the global bank a total bill of $6.8bn in fines. This made it the second biggest enforcement action imposed against one bank since 2015, according to Fenergo.

1MDB is a Malaysian state-owned development company that has been at the centre of billion-dollar embezzlement allegations.

Another notable case over the year was the $910m fine Westpac had to pay for breaking Australia’s money laundering laws over 23 million times. The fines combined with the Covid-19 fallout have caused a 66% drop in Westpac’s profits in the last year.

The year also saw US regulators fines against foreign banks in the UK and Italy drop from nine fines amounting to $2.4bn to just one significant fine. That one was issued by the Office of Financial Sanctions Implementation (OFSI) to a UK bank for breaking Russian sanctions violations. It was the largest ever fine imposed by the regulator at $25.4m.

203 individuals were fined $88.8m for AML and MIFID breaches in US, Europe and China. Global data privacy fines amounted to $88.6m.

“It is estimated that fewer than 1% of criminal funds laundered through the financial system gets confiscated by authorities,” said Marc Murphy, CEO of Fenergo.

“The recent FinCEN files has proven that the industry must work better together to address this growing problem. We must establish a common best practice and replace onerous manual [KYC] and [AML] risk assessment and compliance processes with technology and tools that enable financial institutions, authorities and non-financial firms to better detect and prevent financial crime.”

Looking at the top five countries issuing the highest fines, the US was in the clear lead, having issued a total of about $4.3bn in fines over the last year. Malaysia came second with $3.9bn and Australia third with over $921.5bn. Sweden came fourth having issued fines worth over $550.1m in fines and the UK came fifth with over $199.3 fines.

The research also noted a drop in the number of data privacy fines this year. While GDPR fines are comparable to 2019 at $1.7m the number of data privacy fines issued in the APAC region increased significantly with a large $529,027 fine issued in India and seven fines issued in China totalling over $6.3m. The most significant fine levied for data privacy was to Capital One. It was forced by the Office of the Comptroller of the Currency to pay a $80m for the massive 2019 cloud data breach that compromised over 106 million customers’ accounts.

Administrative sanctions handed out for MiFID violations were lower in volume and value compared to 2019. In 2020 a total of 36 fines were issued to financial institutions and individuals at the value of $7mn, compared to 2019 when two fines alone amounted to $81.5m.

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