AML

Released from its chains – HSBC’s DPA expires

By December 13, 2017 No Comments

Released from its chains – HSBC’s DPA expires
The US Department of Justice Deferred Prosecution Agreement (DPA) on HSBC has, after five years, finally expired. The DPA was put in place after it was found that the bank had violated sanctions on Iran and had allowed Mexican drug cartels to launder money, for which it received a hefty fine of $1.9bn. In a statement, HSBC said it was pleased that the DOJ had recognized the progress it has made in strengthening its anti-money laundering and sanctions compliance capabilities for which it has been heavily scrutinized.

If HSBC has made tangible progress in strengthening its AML controls then this case could show the benefit of using DPAs, concurrently with fines, to produce real change in a bank’s approach to compliance. The “stick” only approach of fines, which many banks budget for anyway, has done little to prevent the recurring violations of financial crime rules. A DPA however, is intended to be used as a “carrot”​,​ ​to ​encourage change by ​giv​ing banks a framework to actively improve their systems and culture instead of receiving even tougher penalties. It is of course, too soon to see whether HSBC has learnt its lesson, and if cultural and practical changes have taken deep enough root to stop such gross violations of AML/CTF rules happening again.

The UK announces a new Economic Crime Centre
It was announced on Monday that the UK’s framework to tackle financial crime will be shaken up with the introduction of a new National Economic Crime Centre. The Centre will come under the ever-expanding umbrella of the National Crime Agency (NCA). Its mission will be to better coordinate the UK’s operational resources from law enforcement and the public and private sectors to tackle financial crime – in particular fraud and corruption. Deputy director of the NCA, Nigel Kirby said:

“Together we will make the UK a hostile environment for serious and organized criminals involved in economic crime; increasing the risk of them losing their liberty and losing their criminal assets. Our shared endeavour will support legitimate business and public services – reducing the costs and losses that threaten our prosperity.”

With the latest figures showing that over £90bn is laundered through the UK each year, any additional resources to tackle financial crime in the UK should be welcomed. The announcement of this new centre comes as the UK also publishes its new Anti-Corruption Strategy 2017-2022, which sets out an “ambitious and long term” plan of how the UK will fight corruption. Both of these announcements will contribute to the UK’s efforts to influence the conclusions of FATF’s mutual evaluation of the country’s AML/CTF efforts, expected sometime late next year.

FATF evaluates Portugal’s AML/CTF framework
FATF have released their fourth mutual evaluation of Portugal. Overall, the evaluation found that the country is doing a pretty good job of complying with the 40 FATF recommendations. It was commended for bringing in rules regarding PEPs, extending the concept of beneficial ownership and for setting up agencies to deal with asset seizure. All of which are a step in the right direction, especially for a country whose most prevalent predicate crimes for money laundering are drug trafficking, tax evasion and corruption.

It is also noted however, that Portugal still has much work to do to improve its AML/CTF framework in some sectors. This includes improving the transparency of Not for Profit Organizations (NPOs) and their related terror financing risk and increasing the strength of preventive measures for correspondent banking and Designated Non-Financial Businesses and Professions (DNFBPs). FATF acknowledges though, that most of these shortcomings would be fixed once Portugal has fully implemented the 4th Money Laundering Directive, which it was still finalizing at the time of the evaluation. Going forward, FATF recommends that Portugal defines a comprehensive AML/CTF program of action to fully address the highlighted risks – which should go far in cementing Portugal’s ability to fight financial crime.

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