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HONG KONG / LONDON (Reuters) – Global banks faced a new dirty money scandal on Monday as they sought to limit the fallout from a stash of leaked documents showing they transferred more than $ 2 trillion in shady funds over nearly two decades. decades.
HSBC Holdings Plc, based in Great Britain HSBA.L, Standard chartered plc STAN.L and Barclays Plc BARC.L, Deutsche Bank AG of Germany DBKGn.DE and Commerzbank AG CBKG.DEand JPMorgan Chase & Co, based in the US. JPM.N and Bank of New York Mellon Corp BK.N They were among the lenders named in the report by the International Consortium of Investigative Journalists and were based on leaked documents obtained by BuzzFeed News.
The report was based on 2,100 leaked Suspicious Activity Reports (SARs), covering transactions between 1999 and 2017, filed by banks and other financial firms with the U.S. Department of the Treasury’s Financial Crime Enforcement Network (FinCen). Banks must submit a SAR whenever they handle funds that raise suspicions of criminal activity.
While some banks said many of the transactions occurred a long time ago, and had since put in place robust controls, the reports revealed broader issues with the monitoring system at the heart of the global surveillance of money laundering and other criminal activity.
The reports drew calls from some industry groups and activists for reform. Investors were concerned about the possible consequences for global banks, many of which have faced heavy penalties in the past for failed controls and have spent billions of dollars to enforce compliance.
“It confirms what we already knew – that huge amounts of SAR are being filed and a relatively low number of cases are being brought to trial,” said Etelka Bogardi, Hong Kong-based financial services partner at Norton Rose Fulbright.
“It also highlights the fact that financial crime risk management goes beyond just performing RAS,” Bogardi said.
The Institute of International Finance, an industry group, called for reforms. “A balance must be found between managing financial crime risk and ensuring access to the financial system for legitimate clients,” the IIF said.
Shares of HSBC and StanChart hit their lowest level in 25 years, though they fared slightly worse than their peers amid a sell-off in global stocks.
JPMorgan and Bank of New York Mellon, which were also among the top five most frequently mentioned banks in SARs, each fell more than 4% during midday trading in New York.
Shares in Deutsche Bank, which participated in the largest SAR number on BuzzFeed’s record, fell more than 8% at one point Monday morning after the reports.
However, several analysts downplayed the scale of the problems.
“Unless there are more substantive factual allegations, we hope this article will not have a lasting impact on the industry or stock prices,” Oppenheimer analyst Chris Kotowski wrote in a note.
Banking stocks were also pressured on Monday by other news, including concerns about a resurgence of the coronavirus in Europe.
IMPORTANT WORK
Deutsche Bank said the issues raised in the media reports were “historic,” while the German Finance Ministry said on Monday that the German-related cases in the reports had already been dealt with.
HSBC also said the information in the reports was historical, while Standard Chartered noted recent investments to improve its monitoring procedures.
BNY Mellon said it was in full compliance with all “all applicable laws and regulations.” JPMorgan said it has “thousands of people and hundreds of millions of dollars dedicated to this important work.”
Many of the suspicious transactions were linked to companies incorporated in Britain or in offshore British territories, prompting action groups to call for stricter rules.
“If the government cares at all about the UK’s reputation globally, it must stop rolling the red carpet to criminals and the corrupt, and refuse to legitimize their money through our companies and banks,” said Global Witness.
The UK government said it was working on reforms to its corporate registration system that will require more controls over company directors.
MAIN CENTERS OF WEALTH
In recent years, global banks have driven investments in technology and personnel to address stricter anti-money laundering regulatory requirements and sanctions around the world.
Thousands of clients were kicked out of bank accounts in major wealth centers, including Hong Kong and Singapore, after a Malaysian money laundering scandal, the denunciation of the “Panama Papers” and a global push for tax transparency.
Compliance experts said part of the problem now was that banks were struggling to distinguish between transactions that were and were not suspicious, so they were simply submitting millions of RAS that enforcement agencies don’t have the ability to handle.
“Many banks are struggling with high false positive rates and backlogging (of existing cases). That’s why you see that sometimes SARs are collected more than 100 days after the transaction, ”said Cliff Lam, director of AlixPartners in Hong Kong.
Reporting by Alun John, Sumeet Chatterjee and Donny Kwok in Hong Kong and Lawrence White, Ritvik Carvalho, Sujata Rao and Karin Strohecker in London, Pete Schroeder in Washington and Paritosh Bansal in New York; Edited by Raju Gopalakrishnan, Louise Heavens, Pravin Char, and Jonathan Oatis
