March 22, 2017 / 3:26 PM / 2 years ago

Banks could do more in money laundering battle

LONDON (Reuters Breakingviews) - Tackling money laundering calls for more zeal from the banking industry. The financial sector’s role in abetting criminals’ recycling of illicit funds is facing further public scrutiny, after revelations concerning ING and several UK lenders. The Dutch bank disclosed in its annual report that it is the subject of a money-laundering probe by domestic authorities, while the Guardian reported on Monday that several British lenders recycled almost $740 million in illicit proceeds for a single Russian crime syndicate.

United States one dollar bills are inspected under a magnifying glass during production at the Bureau of Engraving and Printing in Washington November 14, 2014. REUTERS/Gary Cameron

Each episode is a few years’ old, and financial crime-fighting tools have been toughened since. Britain last year introduced a public register that forces UK-based companies to disclose their beneficial owners, and will soon clamp down on tax evasion through new legislation. Meanwhile, both the Netherlands and the UK are members of the Financial Action Task Force, an inter-governmental anti-money laundering body.

A glaring loophole remains, however. While UK-registered companies must now name their owners, there are no such obligations for most foreign companies. That’s a problem, because faceless shell companies are used frequently to launder criminal funds. The ING-enabled transactions under investigation included transfers from a Netherlands-registered shell company to a Gibraltar-registered shell company with a Dutch bank account, says a person familiar with the situation.

There are essentially three ways in which banks could minimise such payments. Abstaining from transactions involving shell companies altogether would help, but commercial self-interest might be a barrier unless the rest of the industry followed suit. Toughening up compliance by ditching riskier clients is an alternative, and one that lenders like Deutsche Bank and UBS have pursued. The objection here is that with the volumes of transactions that banks process, even the most determined checks will never catch all wrongdoing. After all, the industry filed almost 1 million Suspicious Activity Reports in the United States last year, according to U.S. Treasury Department data.

The third option holds more promise: banks should be more active in lobbying for transparency. Pushing for tax havens to adopt UK-style registers of company ownership is one possibility. Expanding public-private sector information-sharing partnerships to cover lawyers, accountants and trust companies would also help the banking industry weed out crooks. Both would require effective monitoring and implementation. But if banks were to get on the front foot by calling for change, it would be harder to accuse them of being tacit enablers of financial crime - and easier for them to avoid further crippling fines.


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