Headlines over the past several weeks should startle every professional involved in anti-money-laundering efforts. While UBS has been fined billions for conspiring with account holders to commit tax crimes, Danske and Swedbank face probes for alleged massive money laundering crimes.
Yet the shock shouldn’t come from the details of the alleged crimes carried out at otherwise reputable financial institutions, but from the fact that such incidents have actually become business as usual.
What we see in the recent UBS French tax evasion scandal is a repeat of the UBS American tax scandal of 2009, along with other echoes of prior tax scandals prosecuted years ago at Credit Suisse, Deutsche Bank, Bank Julius Baer and other megabanks. And the words of defenders concerning the plight of Danske Bank and Swedbank will undoubtedly sound similar to those who offered a bureaucratic defense on behalf of transactions that produced the Wachovia Bank scandal of 2010 and the HSBC scandal of 2012.
But these scandals are the effect and not the cause of the real problem. The cause lies in the fact that there is nearly $2 trillion in illicit transactions seeking secrecy from governments around the world every year. According to the United Nations Office on Drugs and Crime, only a portion of the $2 trillion involves evaded legal income. The balance primarily comes from revenue streams linked to drug trafficking, illegal arms dealing, the pilfering of treasuries, evading sanctions and fraud.
A popular excuse from the playbook of big banks and their defenders is that AML compliance remains “highly complex and confusing.” They argue that despite their valiant efforts to do everything reasonable to establish effective compliance, the “front line” system failed. Of course, the system always seems to fail without the criminal intent of any individuals.
The reality is that law enforcement has failed to assume the role it needs to fill to prevent big banks from distracting our attention from the real “ground zero.” The true front line in preventing money laundering is not a rigorous compliance program — it’s on the sales side, the point at which executives onboard account relationships with the help of senior management.
To see real change, a genuine collaborative effort is needed by sales, compliance and senior management that rewards a healthy institutional conscience. Put simply, integrity has to outweigh profits. Sales and account executives and other financial officials can’t be allowed to use the thickest of rose-colored lenses in their eyeglasses when evaluating possible criminal links of prospective clients.
At the same time, legitimate governments have to require their law enforcement communities to give the highest priority to imprisoning bankers, businessmen and lawyers that knowingly assist clients moving dirty money. Their prison sentence should equal the amount of jail time their dirty customers face for the crimes they committed. Effectively prosecuting money launderers doesn’t mean bringing laundering charges against hordes of convenience store owners, small-business people and defendants already charged with other crimes. It means doing the hard job of figuring out who is responsible for intentionally laundering and successfully hiding 99% of the nearly $2 trillion a year that the United Nations Office on Drugs and Crime determined is seeking secrecy from governments and imprisoning those launderers for a long time. The criminals that control that money use it to expand their criminal enterprises and corrupt otherwise legitimate governments. Until the act of intentionally laundering this money routinely results in stiff prison sentences, rather than “big” fines paid by innocent shareholders, gatekeepers for the underworld’s fortunes will continue to harvest deposits from the devil and facilitate the global problems we face from crime and corruption.
The next time we have a month of head-snapping headlines about claims of massive money laundering and global tax conspiracies led by institutions, take the time to see how many professionals were individually held responsible for similar acts in the past. Chances are, there were none.
