European Money Laundering Scandals Prompt US Compliance Reviews: Sources

By Valentina Pasquali

U.S. financial institutions are reviewing their transatlantic banking relationships amid a wave of financial crime scandals and record compliance-related penalties in Europe, sources told ACAMS

Since January, European lenders such as Danske Bank, ING Group and Credit Suisse have drawn fire for major lapses in their anti-money laundering controls that enabled corrupt officials, criminals and blacklisted parties from Russia, Eastern Europe, Latin America and North Korea to transact through the global financial system.

U.S. anti-money laundering compliance staff have witnessed the steady flow of negative news from Europe and may follow up with their European correspondents through “compliance calls,” a senior compliance officer at a large U.S. financial institution said.

“It certainly has changed our perspective on risk,” the senior compliance officer said on condition of anonymity. “They used to be considered low risk and now we have to be more aware of these concerns than we were in the past.”

Hundreds of billions of dollars from corruption, money laundering and sanctions evasion schemes have transited through some of the largest European banks for more than 15 years, culminating with the $1.9 billion in U.S. legal and regulatory fines against HSBC in 2012 and $8.9 billion against BNP Paribas three years later.

Unlike years past, however, the current round of compliance-related malfeasance involving Danske Bank, Dutch ING and other European lenders has triggered massive penalties from regulators and prosecutors back home, most recently from the Netherlands.

On Sept. 4, Dutch prosecutors disclosed a record $900 million penalty against ING for repeatedly ignoring warnings that deficiencies in its anti-money laundering program had enabled a “virtually undisturbed” flow of illicit funds from 2010 to 2016.

An internal audit of Danske Bank published Wednesday identified billions of dollars in potentially illicit transactions processed by the Danish lender’s branch in Estonia for thousands of nonresident legal-entity clients. Those violations are expected to inform hundreds of millions of dollars in penalties against the bank.

The audit of Danske Bank will likely inform “transactional lookbacks and program reviews” at some U.S. lenders, Jim Richards, former head of Bank Secrecy Act compliance at Wells Fargo, wrote in an email to

But Estonia’s role as a transit point for illicit flows is well-established, so the news surrounding Dansk Bank’s branch there should not in and of itself compel U.S. AML staff to “fundamentally” reassess risk emanating from Europe as a whole, Richards, now principal of RegTech Consulting in California, wrote in the email.

“A proactive BSA officer has already anticipated that his or her chief risk officer, CEO or directors will ask about their bank’s exposure to the Danske Bank matter,” he said. “They are going through the Bruun & Hjejle report, suspicious activity reporting records and correspondent customer files to see what, if any, exposure and prior reporting was done.”

Eight former employees of Dankse Bank Estonia now face possible criminal investigations in Estonia after the law firm accused them of criminally laundering billions of dollars on behalf of foreign clients.

Danish regulators separately announced that in light of the law firm’s findings, they would reopen an investigation into Danske Bank that concluded in May with a censure but no monetary penalty.

U.S. officials have opened their own investigations into Danske Bank after a whistleblower alleged more than two years ago that some of the suspicious transfers touched Danske Bank’s U.S. correspondent account at Deutsche Bank and Citibank’s office in Moscow, The Wall Street Journal reported Sept. 14.

Danske Bank Estonia currently holds a U.S. correspondent account at Bank of America while ING maintains correspondent ties with several U.S. banks, including Bank of New York Mellon, JPMorgan Chase and Citibank, according to the Clearing House.

Dan Stipano, former deputy chief counsel for the Office of the Comptroller of the Currency, said the spate of scandals may prompt federal regulators to review how U.S. financial institutions manage the potential risks posed by their European counterparts.

“I’d have to think examiners are paying attention to it and that, at least for the banks that have been in the news lately, are going to take a look at the due diligence around those [U.S. correspondent] accounts and how closely they are being monitored,” Stipano, now an attorney with Buckley Sandler in Washington, D.C., said.

“These are all pretty well-established banks and their risk rating might be relatively moderate, so this may cause them [U.S. correspondent banks] to at least go back and reassess that rating,” Stipano said. “I think examiners would probably expect that.”

In February, the U.S. Treasury Department triggered the liquidation of Latvia’s third-largest lender, ABLV Bank, by blocking the institution from the U.S. financial system for handling billions of dollars in suspicious transfers for foreign shell companies, including firms linked to individuals and entities blacklisted by the United Nations or United States.

On Sept. 17, Switzerland’s Financial Market Supervisory Authority publicly reprimanded Credit Suisse for conducting poor due-diligence on a “significant” political client and customers possibly involved in bribery and money laundering at FIFA, Brazilian energy firm Petrobras, and PDVSA, the Venezuelan state-owned oil producer.

FINMA in the past three years has investigated “several banks” suspected of handling funds derived from those schemes and others, including the $4.5 billion embezzlement and money laundering scheme that plundered Malaysian sovereign wealth fund 1MDB.

BSI Bank and Falcon Bank, which holds a correspondent account at JPMorgan Chase, have closed their operations in Singapore and are under investigation, along with several of their employees, in Switzerland for allegedly funneling funds stolen from 1MDB.

Topics : Anti-money laundering , Counterterrorist Financing
Source: Denmark , Estonia , U.S.: Department of Justice , Switzerland
Document Date: September 21, 2018