Banks and business crime: signs of progress?


Financier Worldwide Magazine

October 2018 Issue

In one month in early 2018, three massive banking scandals proved that there is still much to be done when it comes to preventing business crime in the financial sector.

In the US, the Justice Department reached a $613m settlement with US Bancorp over charges that it wilfully failed to implement an adequate anti-money laundering (AML) programme. The bank’s subsidiary, US Bank National Association, deliberately ran an inadequate AML programme from 2009 to 2014. US Bancorp failed to detect large numbers of suspicious transactions, and even tried to hide the problem from regulators.

As Bancorp was paying a heavy price for its failings in February, a Mumbai branch of Punjab National Bank was closed, three people were arrested and one went on the run in what is believed to be the biggest loan fraud in India’s history. One wealthy individual, some of his close relatives and companies linked to him were accused of colluding with bank employees to gain fraudulent payments totalling at least £1.3bn between 2011 and 2017. Indian authorities are still seeking the extradition of some of those it alleges were behind the fraud.

And also in February, Latvian Central Bank governor Ilmars Rimsevics was arrested and questioned over bribery and money laundering allegations. This prompted an emergency meeting of the National Security Council in Latvia, which has become sensitive about accusations that it is popular with money launderers. Mr Rimsevics has since been charged with bribery.


Given the number and severity of the scandals seen in just one month, it would appear that the importance of having preventative measures – or certainly preventative measures that are fit for purpose – has still not been recognised in some corners of the banking industry. Each case indicates a lack of compliance. If the three banks concerned had proper preventative measures, properly enforced, it would have been much less likely that those who were allegedly behind any wrongdoing would have ever tried to commit it.

Certainly, the commission of an alleged £1.3bn fraud involving one branch of the Punjab National raises questions about just how thoroughly the bank had: (i) assessed the potential for wrongdoing to be carried out by staff; (ii) adopted appropriate workplace procedures that eliminated that potential; (iii) introduced a whistleblowing procedure so staff could raise any concerns; and (iv) devised a management structure that ensured each individual’s, group’s or department’s work was scrutinised by another.


All three banks appear to have been guilty of massive procedural failings. But what is perhaps most staggering is not the fact that US Bancorp operated an inadequate AML programme but the fact that it tried to hide this from bank regulators.

If this had happened in the UK and a bank was being investigated by the Financial Conduct Authority (FCA), it could face a huge range of sanctions. Perhaps most relevant to banks, the FCA can stop organisations or individuals carrying out regulated activities, issue fines and bring criminal prosecutions. Similarly, other investigating agencies could impose their own sanctions. For example, the Serious Fraud Office (SFO) has powers under Section 2 of the Criminal Justice Act 1987 to compel someone to attend an interview or produce documents or other information. Providing false or misleading information in response to such a request is a criminal offence.

In the UK, there is the common law offence of perverting the course of justice, which can carry a sentence of imprisonment. This alone indicates the foolishness of any bank going to the lengths US Bancorp did to hide its failings. And do not forget, this is a punishment for individuals, on top of anything that may be imposed for the failings that the bank was trying to hide. Trying to cover up any failings when the authorities are investigating is, therefore, a very dangerous approach.

Money laundering

Bancorp would never have needed to resort to its ill-judged approach if its money laundering procedures had been good enough to meet the challenges the bank faced from those looking to disguise the origins of their ill-gotten gains. Proper procedures would also have gone a long way to ensuring that the Latvian Central Bank did not have to function, as it does now, with the man at the top facing bribery charges.

If we take the case of the UK, those involved in the movement, concealment or spending of the proceeds of crime face prosecution under the Proceeds of Crime Act (POCA) 2002. This can lead to sentences of up to 14 years imprisonment. Even a failure to report knowledge or suspicions of money laundering can lead to prosecution.

Money laundering regulations

The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017), which came into force in the UK in June 2017, was introduced to implement the EU’s 4th Directive on Money Laundering. MLR 2017 replaced the Money Laundering Regulations 2007 and the Transfer of Funds (Information on the Payer) Regulations 2007 (MLR 2007), which were previously in force.

MLR 2017 is basically an extension of the 2007 Regulations, with measures relating to changing approaches to customer due diligence, preventing terrorist financing through e-money and prepaid cards and improving transparency of beneficial ownership of companies and trusts. Like MLR 2007, MLR 2017 covers all businesses or individuals that exchange currency, send money, cash cheques, accept cash payments of over €15,000, form trusts or companies and provide accountancy, auditing or tax advice services.

Banks fall squarely within the remit of MLR 2017. This article’s listing of the problems at some banks is a clear enough indicator of their need to comply. Encouragingly, the recent signs are that banks are responding to the challenge.

They must check the identities of individuals who are current or potential customers and examine the personnel and structures of any corporate bodies looking to use their services. They must also monitor the activities of any individuals or organisations they have as customers and report anything suspicious to the National Crime Agency (NCA) via a suspicious activity report (SAR).

All such checks cannot be carried out in a casual or occasional manner. They have to be conducted thoroughly and systematically. They must also be complemented by the careful filing of all relevant documentation, proper training of staff regarding money laundering awareness – and the need to identify and report it – and the appointment of a designated officer to whom anyone can disclose their knowledge or suspicion of laundering. This officer must then review any information received and decide if it should be reported to the NCA.

The NCA’s SARs Annual Report 2017 outlined a continued increase in the use of SARs by banks. The report shows an almost 10 percent increase, year-on-year, in the number of SARs being made. Such a trend cannot be a fluke. It shows that banks are taking their crime prevention responsibilities increasingly seriously, and are taking the necessary steps to ensure they meet them.

What has to be emphasised, however, is that none of this can be done in an off-the-cuff manner. It can never be considered an afterthought or a bureaucratic exercise. Such an attitude can lead to the failings that have cost US Bancorp so much and placed Latvia’s banking system under the international spotlight.

Banks and other financial institutions cannot afford to fail to meet their legal obligations regarding money laundering, fraud or any other aspect of financial crime. There is no shortage of expert legal advice out there that can ensure such organisations have proper procedures in place to prevent it happening.


Aziz Rahman is the founder of Rahman Ravelli. He can be contacted on +44 (0)800 083 9877 or by email:

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Aziz Rahman

Rahman Ravelli

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