Banks Paying Heavy Price for AML Scandals and Court Cases

i-aml banks aml scandals

Banks caught up in money laundering scandals suffer an average 21% slump in their share price, researchers say, as warnings grow over regulatory scrutiny of the trade finance sector. 

Penalties for anti-money laundering (AML) failings worldwide totalled around US$2.2bn in 2020, and another US$1bn in the first half of last year, according to a paper published by Themis, a financial crime intelligence provider and member organization with a presence in the UK and UAE. 

However, the damage to a bank found guilty of AML-related failings goes well beyond any fine imposed. 

Themis says a sample of seven banks involved in international AML scandals since 2019 shows an average share price loss of 5.2% the day after regulatory action is announced, and a drop of 20.7% over the following six months. 

That reputational hit can “reflect poorly on senior management teams, reducing their chances of re-election by shareholders who have seen the value of their investments plummet”, the paper says. 

“With senior executives frequently granted stock options in addition to their salaries, their own direct interests in the company are also threatened by poor CDD [customer due diligence] processes.” 

There are also potential legal consequences for senior managers who “turn a blind eye” to AML requirements, including potential forced resignation, a ban on operating within the industry or criminal charges, Themis says. 

The paper notes that several Danske Bank executives resigned after the Copenhagen-headquartered lender was caught up in an AML scandal in 2019. The bank was accused by Danish authorities of applying insufficient controls to transactions worth over €200bn through its Estonian branch between 2007 and 2015. 

Themis points out Danske also reported a 36% fall in its first-quarter net profit in 2019 following the launch of criminal investigations, which contributed to a 7% drop in its share price. 

The paper also cites a fine handed to Commerzbank by UK regulators in 2020, as well as action taken against Westpac in Australia and ABN Amro in the Netherlands during the last two years, as examples of banks’ compliance failings. 

Though those incidents were not related to trade finance, Themis warns that the sector increasingly appears to be in the crosshairs of regulatory authorities. 

In the UK, the Financial Conduct Authority (FCA) and Prudential Regulation Authority wrote to all trade finance chief executives in September last year highlighting “significant issues relating to both credit risk analysis and financial crime controls” across the sector. 

GTR has since revealed that as of October, the FCA had three open investigations under money laundering and terrorist financing regulations which involve trade finance activity. 




“Going forward, we can expect close scrutiny of the trade finance space from regulators. The ‘dear CEO’ letter was just one element of a broader reconfiguration of regulators and financial crime risk managers towards the industry; historically, trade finance garnered relatively little regulatory attention and was considered quite a niche space,” Elizabeth Humphrey, research analyst at Themis, tells GTR.   

“The high-profile fraud and default incidents of 2020/21 changed that, prompting a lasting shift towards more caution and scrutiny around trade finance from regulatory bodies across the globe – from London to Hong Kong, Singapore and New York.” 

Humphrey says regulators are showing heightened attention to banks’ financial crime risk assessments, the threats associated with dual-use goods, and the potential for fraud. 

“​​This shift has been mirrored by risk managers inside banks, who have started to question whether they have enough resources to reliably avoid a situation of the likes of Hin Leong or Greensill,” she says. 

Many lenders have scaled back their exposure to trade finance, particularly at the smaller end of the market, while others have exited entirely. 

The paper recommends that firms carry out thorough due diligence across their entire supply chains, arguing that doing so will boost their reputation for good practice among stakeholders, as well as reduce their risk of exposure to illicit activity. 

Where necessary, enhanced due diligence – such as establishing a client’s source of wealth or funds – is also essential in assessing the risk associated with a particular customer, the paper says. Analysis of a client’s transactional history can help identify “nefarious activity” if transactions do not match expected volumes. 

Technology should be used to map relationships between individuals and entities, scrutinize corporate structures, and improve verification of identity documents, Themis adds.


March 17, 2022 Published by The Global Trade Review.

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