July 21, 2017    7 minute read

Financial Crime: When Will Banks Have Their Day of Reckoning?

Slap on the Wrist?    July 21, 2017    7 minute read

Financial Crime: When Will Banks Have Their Day of Reckoning?

It is often argued that in the free market, firms are profit maximising, in the long run at least. This very often is the case unless the firms are outwardly not-for-profit or NGOs. This profit maximisation can lead to firms and banks, in particular, making unethical decisions, which is fine in a free society; however, there is a line, and it is often crossed by banks. Allowing ‘dirty money’ or facilitating transactions between criminals is complicity within the crime. The world has reacted and continues to react as many left-wing populists gain ground across the world calling for the heads of bankers.

BNP Paribas

BNP Paribas is the most famous case of how unethical practices can lead to such grave consequences. The worst fact of it, however, is the company did not just do this once but at least four times to common knowledge. They are known to have loaned out money to the Sudanese government during the Darfur Crisis and massacre, against UN embargo laws; also, trading with Cuba and Iran defying UN sanctions.

They accepted the fine of $9bn in a US settlement. This may seem like a sizeable amount, but within two years the firm was recording profits, showing that either the fine was not enough or that the PR department did a stellar job in covering the blood on the firm’s hands.

One of the issues raised is the fact that it was the US that had to take BNP to court rather than an international organisation. For international law to cement itself with greater authority, there should be a more autonomous branch of the UN, maybe by empowering the International Law Commission in a greater way.

Politics and Law

It can be dangerous for a country like the US being the adjudicator of these cases, as there is a desperate need for these cases to be treated in an apolitical sense, but that is not the system of appointment in the US where ideology plays a much greater role. Furthermore, the Supreme Court decision of Citizens United v. Federal Election Commission in 2010 ruled that firms have the same rights as individuals, which is not a global norm and can easily skew an outcome.

There is an ongoing investigation accusing BNP of having made an arms deal through South African gun runners to the ruling Hutu government during the Rwandan genocide. When asked about the said allegations, a spokesman for the company merely said ‘the company does not have enough information to comment on this complaint’. Even if this is the case, such language does not help the firm given its past and should be investigating more diligently.

Furthermore, if a private firm is found guilty of complicity in war crimes and genocide, the penalty should not be just a fine. If it were a private individual, they would be tried at the ICC. It would be a firm demonstration of intent if the international community took great action against BNP Paribas if found guilty of dealing with the Hutus, and rightly so.

Only ING and BNP Paribas have given statements on human rights policy, and the latter was quite blatant because it had been caught out for complicity, what of the rest?

HSBC and Money Laundering

Money laundering and banks have a long history, with HSBC being one of the more recent examples; yet the scale of money laundering seems to be unprecedented. Of course, it is very difficult to quantify laundered money, but there are estimates that between 2010 and 2014 there could have been $20bn of laundered money through British banks alone, with the real value potentially rising up to $80bn.

Large amounts of laundered money seem to be from Russia, with there being a large scale operation called ‘The Global Laundromat’ uncovered by the OCCRP (Organised Crime and Corruption Reporting Project). The money was ‘dirty’ and even linked to some Russian oligarchs with close links to the Kremlin. This was done by the British branches of international banks or British banks themselves showing a wide scale complicity within this practice.

The OCCRP revealed details of about 70,000 banking transactions, including 1,920 that went through UK banks and 373 via US banks and the number from just the Global Laundromat project was around $738m, a staggering amount of money. Even $113m went through RBS, which the British government had a 71% stake in at the time, and raises alarming questions about the competence of banks, especially considering all banks involved claim to have a strict anti laundering policy. Negligence should never be an option.

The result of this did not incur a penalty on the banks, and even before this, HSBC has only had to pay negligible amounts, like $28m to Switzerland when the authorities found ‘organisational failings’ when four money laundering cases came to light: one involving sales of cannabis, another concerning merchandise from Chinese triad counterfeiters in Spain, and a third involving an unnamed Mexican “well known to certain cartels”. The fourth case had been exposed by the Swissleaks investigation, coordinated by the International Consortium of Investigative Journalists.

The example of Deutsche Bank rings home truths to the problems of banks and accountability even when found guilty. Deutsche Bank paid out £500m for anti-money laundering failings that allowed wealthy clients to transfer $10bn out of Russia in trades that were “highly suggestive” of financial crime. Deutsche Bank apparently failed to recognise 3,800 transactions of mirror trading over a 2-year period. When British and American regulators came, of course Deutsche Bank complied, paid the money and made profits the same quarter.

Mossack Fonseca

Mossack Fonseca was the biggest achievement of investigative journalism and should ring some home truths about practices of banks today. Having an offshore bank account is perfectly acceptable and tax avoidance, even if unethical, is still legal and potentially even part of policy for some governments in order to attract big money to their countries’ accounts.

It does become unacceptable, however, when political representatives find themselves on such a list; a list which also features activity of money laundering. One does not want to make accusations but this combination should be frightening, to say the least, and the facilitators come from financial services showing some form of complicity. The investigation is ongoing and while it may have caused the Iceland PM Sigmundur Davíð Gunnlaugsson his job, there should be a penalty incurred on Mossack Fonseca as well for failings to detect and stop money laundering from taking place. No outright conclusions can be made between politicians and criminal activity, but it leaves one wondering.

Political Backlash

There is little doubt that firms should be accountable for their actions. Normally this would be a reaction by the markets in which share prices rise or fall, but for banks who seem to be masters in financial manipulation, there probably needs to be alternate means. Populism is largely categorised as anti globalisation both on the right and left, with the anti establishment sentiment well-known.

A telling tale of public opinion on banks is the shock 2016 US Presidential election. A classic smear on Hillary Clinton’s campaign was the fact that she took money for speeches at Morgan Stanley and Goldman Sachs. Opinion for many is against Wall Street, and some of it undoubtedly comes from the fact that Wall Street does not hide its intention of being a money making machine, only with the interest of shareholders and not broader stakeholders.


Further this with the fact that regulators seem to be inefficient in bringing meaningful structural change and one has to say some of the anti banking sentiment has legitimacy from a moral standpoint. From Marine Le Pen’s FN to Syriza, nationalising banks is on the agenda for a reason. The activity has no doubt decreased confidence in the private sector and increased prominence of the public sector, rightly or wrongly. The jargon coming out of populism is to change the ‘system’, and part of that is the neglect the private sector gives to crime.


Get articles like this straight to your inbox each morning with our Breakfast Briefing. Sign up by clicking here!

Log in with your details


Forgot your details?

Create Account

Send this to a friend