Billions in Fines

November 22, 2019 4 minute read

Legislation in the USA gets some charitable support, AUSTRAC means business with its fines and the ECB shuts down a bank.

We share our financial regulatory highlights from the week of 18th November 2019.

Support Grows for Illicit Cash

Anonymous shell companies in the US are under increased scrutiny this year, with several prominent voices both at home and abroad urging legislative action. In a letter dated November 18, a group of 10 human rights organizations expressed their strong support for a bill before US lawmakers that would unmask shell companies’ owners, making it harder for corrupt individuals to exploit the legal and financial systems in the US. The ILLICIT CASH Act was introduced in September and is currently being deliberated in the Senate.

The organizations, which include Amnesty International USA, Freedom House and Human Rights Watch, assert that the act would be a significant step forward in the fight to thwart corruption and curb human rights violations. They acknowledge the US’s aggressive efforts to crack down on money laundering within its jurisdiction. But they call out the lack of federal reporting requirements for beneficial ownership information as a weakness that bad actors can and do exploit — which perpetuates corrupt practices that hinder the fulfillment of basic rights in developing countries.

The letter highlights Teodoro Nguema Obiang Mangue, aka Teodorin, Equatorial Guinea’s vice president. The public official spent millions of dollars — acquired by misappropriating public funds and kept in US shell companies — on luxury goods like artwork, a mansion in California and a private jet. The ability to register shell companies anonymously has, therefore, contributed to the neglect of Equatorial Guinea’s citizenry by the country’s elite.

Yet the Department of Justice’s investigation into Teodorin’s corrupt activities sparked other investigations internationally, which have ensnared many of the country’s public officials. The US, therefore, can do a lot of good when it turns the spotlight on shell companies’ owners.

The ILLICIT CASH Act’s fate is uncertain. However, lawmakers have demonstrated a willingness to tackle this issue. Similar legislation — the Corporate Transparency Act of 2019 — was approved by the House of Representatives last month and is now also in the Senate’s hands.

Billions in Fines

AUSTRAC has accused Australian bank Westpac of being responsible for 23 million anti-money laundering breaches.

The accusation could see Westpac facing fines of up to AUS$21 million for each transaction that Australia’s second-biggest bank failed to monitor or report. Potentially resulting in a fine of billions of dollars.

AUSTRAC is pursuing the issue in court and has claimed that Westpac was, since 2013, aware of “heightened child exploitation risks associated with people who made frequent low-value payments to the Philippines and South East Asia.”

Westpac maintains that it self-reported the breaches to AUSTRAC and has since closed down the service responsible. CEO, Brian Hartzer has rejected suggestions of ambivalence on the issue, stating: “At a senior executive level, for the board, for me personally, in no way have we been indifferent on this.”

Australian Prime Minister, Scott Morrison, said that the board of Westpac “need to determine themselves” whether Hartzer should resign, but made clear that the bank must make decisions that protect people’s interests and safety.

The board appears to be supporting Hartzer following an unreserved apology from Chairman, Lindsay Maxsted and a promise of an independent review to secure accountability for the breaches.

We’ve covered quite a few stories in recent months concerning AUSTRAC’s crackdown on non-compliance, with PayPal and money transfer dealers feeling the heat. This latest story is just more proof that the regulator means business for the financial sector.

Closing Down the Bank

The ECB has revoked the license of AAB Bank due to compliance issues and allegations of money laundering. The decision has been made with immediate effect, meaning the Austrian lender will have to withdraw from banking business.

AAB Bank had already begun to withdraw from banking a month ago and has said that the ECB’s decision “does not change anything; the Bank will continue or accelerate its withdrawal from banking business as planned.”

The bank had a history of poor compliance with money laundering regulations having been involved in the Odebrecht corruption scandal and a fine earlier in the year for AML and CFT failures.

It’s good to see the ECB censuring failures for compliance even if the bank was withdrawing from the industry anyway. After recent criticism that the ECB hasn’t been doing enough in Europe to tackle noncompliance, this could mark an uptick in enforcement.

Don’t miss a single update by signing up to our newsletter here.