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Consequences for Non-Compliance

by | Feb 24, 2021 | Compliance, Financial Crime Academy

Do you want to know what is Consequences of Non-compliances? Over the last few decades, regulators around the world have actively been working on anti-money laundering laws and regulations. The subject of regulation are oftentimes organizations and business, such as banks and financial institutions, but are also aimed at industrial corporation, retailers, and many other types of businesses.

A failure to comply with AML laws and regulations can have serious consequences including punitive fines, criminal proceedings, damaged reputations and sanctioning – all crystal clear motivations to justify efforts of AML compliance. All the consequences listed above can lead to serious damage to an organizations credibility and performance.

Becoming a sanctioned party due to breaches of AML laws and regulation can be even more damaging. Becoming sanctioned by one or more global bodies considerably reduces, if not halts, an organization’s ability to provide for and cater to its international customers’ needs for performing global transactions.

Let’s look precisely at three damage categories that organizations might be facing if they fail to comply with applicable AML laws and regulations.

Consequences for Non-Compliance:

Regulatory Fines

According to an analysis by the Encompass Corporation, the U.S. are top of the list. Their regulators have imposed 25 AML related penalties adding up to 2.3 billion US-Dollar. British regulators took second place globally issuing 12 penalties totaling almost 400 million US-Dollar. France had the highest single AML fine of 5.1 billion US-Dollar.

This was down to Swiss bank UBS after it was found guilty of illegally soliciting clients and laundering the proceeds of tax evasion. But even this fine still does not trump the 8.9 billion US-Dollar AML fine issued in 2014, which saw France’s biggest bank fined by US regulators for transferring billions of dollars on behalf of Sudan and other countries blacklisted by the US.

Looking across the board, the average monetary fine was 145.33 million US-Dollar in 2019 and only under half of these were given to banks. Meaning that the remainder was given to non-bank businesses and organisation.

This is quite interesting, because historically, the majority of these fines have been given to banks, but this year the proportion was less than half, demonstrating that money laundering is now recognized as a general business issue, not just one that is specific to financial services.

For example, regulators in the gambling and gaming sector were particularly active in 2019, handing out five fines, all of which were well over 1 million US-Dollar and the highest being 7.2 million US-Dollar.

Reputational Risk

The second damage category is the reputational risk. Senior managers know the importance of their companies’ reputations. Firms with strong positive reputations attract better people. They are perceived as providing more value, which often allows them to charge a premium. Their customers are more loyal and buy broader ranges of products and services. Because the market believes that such companies will deliver sustained earnings and future growth, they have higher price-earnings multiples and market values and lower costs of capital.

Moreover, in an economy where 70% to 80% of market value comes from hard-to-assess intangible assets such as brand equity, intellectual capital, and goodwill, organizations are especially vulnerable to anything that damages their reputations. Benjamin Franklin said that it takes many good deeds to build a good reputation, and only one bad one to lose it.

And this is especially true for money laundering. Reputation in this area is usually negatively affected by the announcement of a serious investigation into money laundering usually in connection with clients, transactions, or business dealings. There are many examples where money laundering has destroyed the reputation of companies. Danske Bank, 1MDB, Odebrecht, Petrobras, Siemens, and there are many more.

Legal Liability Risk

The third damage category involves legal liability risks. This includes on the one hand civil liabilities. The possibility of legal damages being incurred is increasing with more frequent civil class action lawsuits.

On the other hand, this also includes criminal liability. While it was once very exceptional, the prospect of criminal liability risks for money laundering weaknesses can no longer be discounted.

The phrase “too big to jail” is one that grates amongst many who advocate criminal prosecutions and individual criminal liability as the only way to ensure satisfactory focus and full compliance with AML laws, regulations and expectations. And to give you one very prominent example.

Greece’s former transport Minister was found guilty in 2017 for money laundering. He was handed an eight year suspended sentence, probably due to his age, and given a personal monetary fine.

Now I hope you found this article useful and if you have any questions, please let me know. Otherwise, thanks for watching and see you in one of our online course.

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