Financial crime is still happening worldwide despite all the best efforts of regulators and organisations.
Financial crime recent statistics
A report published by Fenergo towards the end of 2018 revealed that there were $26bn (or £20.2bn) in fines related to Anti-Money Laundering (AML) legislation, Know Your Customer (KYC), and sanctions regulations in the decade following the financial crisis.
PwC's Global Economic Crime and Fraud survey revealed that 51% of organisations surveyed reported experiencing some form of fraud over the past 24 months - the highest level in over 20 years of research. As a result, UK financial services organisations spend £34.2 billion each year on financial crime compliance.
The average financial crime fine for the decade sits at $15.7m (approx. £12.2m). Global fines for failure to prevent money laundering and other financial crime surged by more than 50% in 2022. The AML Intelligence's financial crime fines review indicates that the UK represent 10.2% of total global fines handed out in 2021.
Biggest fines in financial crime
- Highest AML fine: Binance
- Biggest foreign bribery case: Odebrecht
- Biggest UK criminal enforcement fine: Rolls-Royce
- Most significant FCA penalty: Deutsche Bank
- First FCA fine for AML failures: NatWest
- Largest FCA breach of rules fine: Barclays Bank
- Biggest money laundering scandal: Danske Bank
- Biggest ongoing corruption case: Shell & Eni
HM Revenue and Customs (HMRC) oversees compliance with AML regulations, and it is one of 25 AML supervisors in the UK. HMCR oversees over 300k businesses in nine different sectors. It has committed to delivering a more enhanced risk-based approach to its supervision.
Highest AML fine: Binance
Cryptocurrency exchange Binance has pleaded guilty and agreed to pay a $4.3 billion fine after admitting that it engaged in money laundering, unlicensed money transmission, and sanctions violations, according to US regulators.
Its founder and CEO, Changpeng Zhao, who is known by his initials CZ, has resigned and will pay a $50m fine. He pleaded guilty to failing to maintain an effective AML program and now faces a possible jail term.
Prosecutors said that Binance had such poor controls that terrorists, cybercriminals, sanctions violators and child abusers channelled payments for years via its platform.
The crypto exchange failed to implement know-your-customer (KYC) protocols or monitor transactions and never filed a suspicious activity report (SAR) with FinCEN. It allowed users to open accounts and trade without submitting any information other than an email address, only requesting information in August 2021, while allowing existing users to keep trading until May 2022 without checks.
Biggest foreign bribery case: Odebrecht
In December 2016, Brazillian engineering giant Odebrecht and its subsidiary, Braksem, admitted bribery to the tune of £553m, in which the US Department of Justice called "the largest foreign bribery case in history".
Odebrecht paid off politicians, political parties, officials, lawyers, and bankers to secure lucrative contracts in Brazil and abroad - covering 12 nations in total. Remarkably, they even created a special department to manage its dodgy deals, named the Division of Structured Operations, leaving prosecutors speechless.
In April of the following year, Odebrecht was formally fined $2.6bn (approx. £2bn) by a US judge. The ripple effects have been far-reaching, with the scandal implicating a staggering number of Brazil's senators and governors, as well as forcing the resignation of the president and the imprisonment of Ecuador's vice-president.
Biggest UK criminal enforcement fine: Rolls-Royce
In 2017, Rolls-Royce was forced to pay £671m to settle corruption cases with UK and US authorities. The UK's Serious Fraud Office (SFO) found several of cases of conspiracy to corrupt or failure to prevent bribery in at least a dozen countries, spanning a shocking 25-year period.
The aerospace firm was ordered to pay £497m to the SFO, as well as £141m to the US Justice Department, and a further £21.5m to Brazilian regulators. The cases detailed by the SFO included paying for employees of a Chinese airline to attend a two-week MBA course at Columbia University with lavish accommodation and extra-curricular activities while negotiating the sale of T700 engines.
The firm has since apologised and promises to have zero tolerance for business misconduct of any kind.
First FCA fine for AML failures: NatWest
NatWest received a huge £264.8m fine after being convicted for three separate offences in relation to anti-money laundering failures. This fine marks the FCA's first criminal charges against a firm for AML failures.
According to the sentencing judge, Mrs Justice Cockerill, "although in no way complicit in the money laundering which took place, the bank was functionally vital. Without the bank – and the bank's failures - the money could not be effectively laundered."
Between November 2012 and June 2016, NatWest failed to monitor the activity of a commercial customer adequately, Fowler Oldfield, a jewellery firm in Bradford. NatWest initially assumed it would not handle cash from the Fowler Oldfield firm when it took on the account. However, around £365 million was placed with the bank throughout the customer relationship, with around £264 million in cash.
Some of the bank's workers in charge of handling these cash deposits reported their suspicions to the bank's money-laundering investigators, but they took no action. The reported red flags included depositing large amounts of Scottish banknotes around England, suspicious behaviour when individuals were depositing cash at NatWest branches, and deposits of notes with a strong, musty odour.
Furthermore, the bank's automatic transaction monitoring system misidentified some cash deposits as cheques. Because cheques carry a lower risk of money laundering than cash, the bank's monitoring of many cash depositors, including Fowler Oldfield, was severely lacking.
Most significant FCA penalty: Deutsche Bank
The year 2017 didn't start off well for German lender Deutsche Bank after the FCA levied £163m in fines against them. This marked the most significant penalty the FCA had ever applied.
The FCA found the firm had exposed the UK financial system to significant financial crime risks by failing to oversee the formation of new customer relationships and the booking of global business in the UK. Their lack of due diligence led the bank to be used by unidentified customers to transfer approximately $10bn from Russia to offshore bank accounts.
Specifically, the FCA accused Deutsche Bank of performing inadequate due diligence, failing to ensure responsibility for KYC obligations, using flawed risk rating methods, and having deficient and inadequate AML policies, procedures, IT infrastructure, and systems for detecting suspicious trades.
Largest FCA breach of rules fine: Barclays Bank
After breaching Principle 3, the FCA imposed a fine of £284m on Barclays for failing to control business practices concerning its foreign exchange (FX) business in London. This financial penalty is the largest the FCA or its predecessor, the Financial Services Authority (FSA), has ever issued.
Barclays' controls over its FX business were ineffective as its front office failed to identify obvious risks linked to confidentiality, conflicts of interest and trader conduct. The bank engaged in collusive behaviour, and the FCA also found evidence of the inappropriate sharing of confidential information.
Barclays settled the penalty at stage two of the investigation, allowing them to qualify for a 20% discount, without which the fine would have been £355.5m.
Biggest money laundering scandal: Danske Bank
Possibly the largest-ever money-laundering scandal in history unfolded in the European Union. The Estonian branch of the Danske Bank from Denmark was rocked by allegations that they laundered up to €200bn over a nine-year period.
The scandal involved over 32 currencies and companies in Cyprus, the Seychelles, British Virgin Islands, and the UK. The bank had to pay $2m in fines to date and initially faced fines of up to $8bn (approx. £6.2bn).
Although the scandal forced Danske's chief executive, Thomas Borgen, to resign the bank is still very much in business. According to anti-corruption expert Nienke Palstra, "Europe has a major money-laundering problem. Until we see senior executives held fully accountable for criminal wrongdoing and serious fines for the banks involved, this kind of scandal will continue for decades to come."
Interestingly, Deutsche Bank has been drawn into the Danske Bank scandal. According to Danske Bank's biggest whistle-blower, Howard Wilkinson, more than half of the $250bn in suspect funds handled by the bank was funnelled through none other than Deutsche Bank.
Biggest ongoing corruption case: Shell & Eni
Oil giants Shell and Eni have been cleared of accusations of bribery and corruption in what was called one of the biggest corporate corruption scandals in history.
The case dates back to 2011, when the two companies paid $1.1bn for an oil block located off the coast of Nigeria. But shockingly, instead of the money going to the Nigerian people, it went to convicted money launderer Dan Etete and his secret company, Malabu Oil and Gas.
The trial began in Milan in September 2018 and lasted for over three years. Both companies and the accused managers have repeatedly denied any wrongdoing. However, the Nigerian government stated they were disappointed with the outcome.
What else lies ahead in financial crime?
Regulators have to become more stringent and deliver bigger fines than ever in their endeavours to win the global fight against financial crime. The Fifth Money Laundering Directive (5MLD) came into force in January 2020, with 6AMLD introduced in December 2020. The appetite for financial sanctions also continues to grow.
However, it's not just monetary fines that companies need to be concerned with. In further attempts to crack down on financial crime cases like money laundering and bribery and corruption, the senior executives responsible for ensuring compliance increasingly face the threat of jail time.
Repercussions are set to be felt not just at the company level but also at the individual level. The cost of failing to mitigate risks is clear, with FCA fines, competition penalties and AML fines reaching well into the millions in 2023.
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