Wednesday, October 17, 2007

Banks in hot water over AML

Still on my AML rant, it appears that Lloyds TSB is the latest bank to find itself in hot water under US legislation.

According to a report on Bob's Guide, Lloyds is alleged to have "knowingly assisted" Lycourgos Kyprianou, founder and former chairman of AremisSoft, in laundering approximately $500 million through his bank accounts. The Bank of Cyprus is also implicated in the allegations.

A Lloyds spokesperson stated there was no basis for the action by the US. But it does remind me of the debate we have been having on this blog over a period of months about the effectiveness of anti money-laundering measures and whether banks really know their customers or whether the solutions they are putting in place are merely to satisfy the regulators.

Well it seems US regulators are a rather difficult bunch to satisfy. Lloyds is not the first UK or European bank that has found itself in hot water. NatWest and Credit Lyonnais are the subject of lawsuits in the US that allege the banks channeled funds to organisations that raise money for Hamas, which is designated a terrorist organisation by the US, but not necessarily by other countries.

The lawsuits against the latter two banks were filed under the US's Anti-Terrorism Act, which says it is unlawful for any person or entity to provide "material support" to foreign terrorist organisations. The banks need to prove they did not knowingly channel funds and that the provision of "routine banking services" does not amount to "material support".

With reputational risk very much at the forefront and the heavy hand of regulators so eager to clamp down on any potential threat of money laundering (after all haven't some UK banks been fined under AML measures not for actually laundering money but for not having adequate measures to combat it in place?), the real question is not whether banks are "knowingly" participating in money laundering, but whether all the millions they have invested in combating AML is money well spent?

Even if there is a stray employee within a bank facilitating money laundering, what measures does the bank have in place to try and prevent that from occurring? It comes back to that age-old question, are banks spending so much time on 'ticking boxes' for regulators that they actually know relatively little about their customers?

Furthermore should the onus for 'policing' fraud and terrorist financing activities lie with the banks given that their raison d'ĂȘtre is to make money?

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