A Drop In Money Laundering Fines: Looking Behind The Statistics

Nicola Sharp of Rahman Ravelli explains why a large drop in mon­ey laun­der­ing penal­ties does not paint the full picture.

There seemed to be a degree of con­ster­na­tion when it was report­ed that mon­ey laun­der­ing penal­ties imposed on finance com­pa­nies in the first six months of 2021 were almost half what the fig­ure was for the same peri­od a year earlier. 

At first glance, such a reac­tion is under­stand­able. But it is a sit­u­a­tion that requires much more than a glance to be ful­ly under­stood. The penal­ties for non-com­pli­ance with anti-mon­ey laun­der­ing and know-your-cus­tomer reg­u­la­tions were down 40%, to a glob­al total of $930 mil­lion from January to June this year. This would appear to be at odds with the wide­ly-held view that the coro­n­avirus pan­dem­ic has prompt­ed an increase in finan­cial crime. It also seems to fly in the face of the fact that enforce­ment action against finan­cial insti­tu­tions in recent years has been at high­er than ever levels.

But these fig­ures shouldn’t be seen as reflect­ing a drop in finan­cial crime. If any­thing, it would be a major sur­prise if we did not see a sig­nif­i­cant increase in finan­cial crime inves­ti­ga­tions – and in enforce­ment result­ing from these – as the world, hope­ful­ly, emerges from the shad­ow of the pan­dem­ic. This is sin­gle-hand­ed­ly like­ly to raise the total num­ber of penal­ties being imposed. But when the often-report­ed finan­cial crime that has flour­ished dur­ing the pan­dem­ic is also fac­tored in, we can sure­ly expect a fur­ther hike in the penal­ty fig­ures. Once the num­ber of inves­ti­ga­tions ramps up, a rise in penal­ties is sure to fol­low. And with­out want­i­ng to heap pres­sure on the enforce­ment agen­cies, the com­bi­na­tion of an inves­tiga­tive back­log and a wave of pan­dem­ic-relat­ed crime may lead to the rise in penal­ties being par­tic­u­lar­ly steep.

Normal Working

The pan­dem­ic may well have led to enforce­ment agen­cies not being able to con­duct inves­ti­ga­tions at “full throt­tle’’, due to the restric­tions they have had to work under. But the lim­i­ta­tions they were fac­ing are now being removed. This means that they have free rein to both resume nor­mal work­ing while also look­ing to iden­ti­fy and penalise those who have tak­en advan­tage of the pan­dem­ic for crim­i­nal gains.

It has to be said that, at this stage, the full impact of COVID on finan­cial crime is yet to be seen. A lot of the talk about COVID and ille­gal activ­i­ty has been lit­tle more than anec­do­tal. The inter­view rooms and court­rooms are yet to be filled with those accused of using the pan­dem­ic as a spring­board for finan­cial crime. But even if we do not know the exact scale of the crime that has been prompt­ed by the pan­dem­ic, it is fair to assume that it is size­able. As the full impact does emerge, it will only empha­sise the impor­tance of hav­ing anti-mon­ey laun­der­ing (AML) poli­cies and pro­ce­dures in place that are fit for pur­pose, being car­ried out prop­er­ly, reg­u­lar­ly reviewed and, where nec­es­sary, revised.

Reminders

Arguably, com­pa­nies should not need any fur­ther reminders of the need to be ful­ly com­pli­ant with AML oblig­a­tions. But if a reminder is required, then sure­ly the prospect of enforce­ment agen­cies com­ing back to func­tion­ing at full capa­bil­i­ty while look­ing for a pan­dem­ic-inspired rise in finan­cial crime fits the bill. If we are talk­ing about the enforce­ment agen­cies return­ing to busi­ness as usu­al, then those they inves­ti­gate need to be mak­ing sure they are con­duct­ing their busi­ness in a legal­ly com­pli­ant way.

It is worth point­ing out that fin­tech Fenergo’s report, which pro­duced the news of reduced mon­ey laun­der­ing penal­ties, high­lights 2020 as a land­mark year for reg­u­la­tors tak­ing puni­tive action against those who were known to have failed to meet their oblig­a­tions. That is not a stance that is like­ly to be dropped after 12 months and one pandemic.

We are in an era where mon­ey laun­der­ing and its asso­ci­at­ed crimes are com­ing under increas­ing scruti­ny around the world. The sharp drop in penal­ties is cer­tain­ly news­wor­thy, as it is an eye-catch­ing sta­tis­tic. But it is a sta­tis­tic that is not like­ly to remain cur­rent for long. 

Countries are look­ing to improve their efforts to tack­le mon­ey laun­der­ing, sev­er­al high-pro­file cas­es have made the prob­lem impos­si­ble to ignore and reg­u­la­tion and enforce­ment are at the top of the author­i­ties’ agen­da. Acting on that agen­da may have been reduced due to the pan­dem­ic, lead­ing to the size­able drop in penal­ties. But it will sure­ly not be long before the penal­ty sta­tis­tics start ris­ing sharply.

Lawyer Montly By Nicola Sharp