OCTOBER 2015

ATM ------“Corruption is one of the greatest enemies of progress in our time… It creates a system of patronage where the resources are shared out by a small elite while the majority are trapped in poverty, denied the benefits and proceeds of growth

that are rightfully theirs.”

UK PRIME MINISTER DAVID CAMERON, JULY 20151 ------CONTENTS ------

SUMMARY...... 4

THE COST OF CORRUPTION ...... 8 IN THE DEVELOPING AND DEVELOPED WORLD

THE BANKS: A HISTORY OF ...... 11 HANDLING STOLEN ASSETS

WHAT BANKS ARE ...... 14 SUPPOSED TO DO

THE WRONG INCENTIVES: ...... 16 WHY BANKS ENABLE CORRUPTION

THE OTHER FACTORS ...... 22

RECOMMENDATIONS ...... 24

ENDNOTES ...... 26

...... 3 ------SUMMARY ------

Corruption is a major problem The bad news is that while many which has a devastating human banks uphold these rules, cost. In poor countries it kills a large number do not. This failure people and traps millions more spans a spectrum of activities: in poverty. When unscrupulous from lacking systems to spot officials steal vast sums of state suspect funds, to turning a blind money, they decimate funds that eye when risky funds are identified, should be spent on hospitals, to knowingly handling ill-gotten schools and other basic services. gains. The result is that many banks leave the door wide open Rich countries are affected too. for corrupt people to launder their Corruption thwarts competition funds. Global Witness was one and innovation, and adds of the first organisations to bring to the cost of doing business to public attention the role that around the world, undermining the banks play in large-scale corruption, global economy. It leads to failed with a report in 2009 exposing how states, breeds terrorism, some of the world’s largest banks and threatens the national security had done business with some of of wealthy countries and others the world’s most corrupt regimes.2 around the world. In February 2015, the leak of The largely hidden truth is that documents from HSBC Switzerland banks play an integral role suggested that one of the biggest in enabling this. Corrupt officials banks in the world had enabled need somewhere to hide tax evasion on a massive and stolen money. institutionalized scale. However, The good news is that laws and HSBC’s behaviour is not a one-off, regulations apply in most countries, and is part of a much wider based on internationally agreed problem of banks failing to turn standards, which require banks to away suspect funds. A global do a range of checks to detect pattern of wrongdoing emerges: Women counselors take care of children the proceeds of corruption and from banks aiding tax evasion and suffering from severe mental trauma and anxiety at the Kassab Camp other crimes, and money intended corruption, to handling the proceeds for the displaced in Sudan’s Darfur region. Many of the children at the camp for terrorist groups. of drug trafficking and other serious witnessed their parents being killed by the crimes, to breaking sanctions laws government-allied Janjaweed militias. French bank BNP Paribas pled guilty and ignoring the risk of terrorist to breaking U.S. sanctions laws to Sudan, including funneling money to the Sudanese 4 ...... financing. This report concentrates regime. © Gary Knight/VII/VII/Corbis ------“If large financial institutions can break the law and accumulate millions in profits and, if they get caught, settle by paying out of those profits, they do not have much incentive to follow the law”.

ELIZABETH WARREN, U.S. SENATOR, DEMOCRAT, MASSACHUSETTS 3 ------on the role banks play in enabling profit even if they take embezzled responsibility for banks’ rule- corruption, how this is part of or other illegitimate money. breaking, many banks will the wider pattern of rule breaking There are several reasons for this: not take rules designed to prevent by them, and the impact this has. the rules are rarely enforced; corruption, and other crimes, However, banks are just one part where penalties are handed out, seriously. Until then, corrupt of the puzzle. Global Witness they usually do not go far officials will continue to plunder has highlighted the role of other enough; and, senior executives state assets, tax cheats will carry professional service providers, who have oversight of breaches on evading their taxes, and other such as lawyers and accountants, rarely face financial or reputational serious criminals will continuing that may also facilitate corruption consequences themselves. It can committing their crimes, and serious crimes.4 make sense for banks to break the knowing that they can use banks rules under the present system. to get away with it. There are two main questions. Why are many banks repeatedly We need to change this balance breaking the law and other of incentives, so that banks have regulatory standards, and what can much more to lose than they be done to change this? have to gain from handling suspect funds. The most effective way CHANGING THE INCENTIVES to do this is to hold senior Skewed incentives lie at the root bankers personally responsible of the problem. Under the current when their banks break the rules. system, banks can make significant Until senior bankers face personal

------* Adopt a much stronger, have the overall responsibility SUMMARY OF and smarter, approach for anti-money laundering RECOMMENDATIONS to enforcing anti-money regulations, as part (see p24 for laundering regulations. of a broader culture change. recommendations in full) * Significantly enhance scrutiny ------* Establish adequate anti- of accounts held by people money laundering regulations with access to government Governments and in countries where they budgets who pose a high regulators should: currently do not exist. risk of money laundering. Remove obstacles for banks, Start holding senior bankers * * Work closely with each other, * such as difficulties personally responsible when governments and a range of in identifying the real, ultimate banks violate anti-money actors to solve key problems. owners of companies which laundering regulations. they hold accounts for. * Remove legal impediments preventing authorities Banks should: from holding senior executives personally liable for * Appoint someone from wrongdoing at banks. either board or senior management team level to

6 ...... ------“[BNP Paribas] employees – with the knowledge of multiple senior executives – engaged in a long-standing scheme that illegally funneled money to countries involved in terrorism and genocide”.

BENJAMIN LAWSKY, HEAD OF THE NEW YORK BANKING REGULATOR5 ------

------from compliance staff that The New York banking regulator CASE STUDY: transactions involving certain summed up the complicity BNP PARIBAS – Sudanese customers would of senior management at PROFITED FROM violate U.S. law. These concerns the bank: “violations were GENOCIDE pointed to the pivotal part particularly egregious in part AND TERROR the bank played in allowing because they continued for ------the Sudanese regime to trade many years after other banks oil and finance itself, and were sanctioned for similar In a landmark case highlighting highlighted the role that the violations; involved numerous how senior executives Sudanese regime was playing schemes expressly designed to overrule compliance teams, in the genocide in Darfur, deceive regulators; and were BNP Paribas was fined $8.9 and had played in harbouring committed with the knowledge 8 11 billion by the U.S. in June 2014. Osama bin Laden. Yet the of multiple senior executives.” The French bank pled guilty6 senior executives decided ------to knowingly, and willfully, to take the money because breaking U.S. sanctions the business was too good to 9 laws with respect to funds turn down. originating from Sudan, Iran Most alarmingly, this happened and Cuba. This involved after the U.S. authorities concealing more than $190 had already identified failures billion of transactions for clients by BNP Paribas to comply with 7 subject to U.S. sanctions. money laundering and sanctions Evidence published by the laws in 2004, and ordered Department of Justice showed it to sign a Memorandum of BNP Paribas, France’s largest bank was that senior executives at the Understanding agreeing to fined $8.9 billion by U.S. authorities in 2014. bank ignored several warnings improve its compliance with Flickr: dierk schaefer these laws.10

...... 7 ------T H E CO S T O F CO R R U P T I O N I N THE DEVELOPING A N D D E V E LO P E D WORLD ------

Corruption is not a victimless crime. A World Bank study looking at girls in Nigeria who currently cannot It is “public enemy number one” over 200 cases of large scale afford to attend school.17 in the developing world, according corruption over a 30 year period up This is not just a problem in to Jim Yong Kim, President to 2010 estimated that from those poor countries. The factors which of the World Bank.12 Money lost cases alone governments lost contribute to many banks not from bribery and embezzlement out on at least $56.4 billion as a doing the proper checks on significantly deprives government result of corruption.13 Our analysis their customers in order to stop budgets of the funds needed of this data shows that 140 corrupt funds, also mean that many to provide vital services like clean different banks around the world are not doing the right checks water and health care, or to invest were involved in handling this to prevent people from evading in infrastructure. stolen money,14 including taxes. This is particularly damaging over a third of the world’s current There is no way to put a dollar at a time when public spending is 50 biggest banks.15 figure on the plunder because by under fire. its nature corruption is a crime Nigeria is one example of the cost Banks’ bad behaviour has negative of concealment, aided and abetted of corruption: according to research consequences for the economies by strict confidentiality rules around commissioned by the Nigerian of rich countries. A report by banking and legal services. government, the country and its the B Team, a group of international So, unless criminal investigations citizens have missed out on at CEOs and business leaders or leaks bring specific instances least $35 billion over 10 years due including Richard Branson and to light, it is difficult to know when to corruption in the oil industry.16 Mo Ibrahim, states: banks and lawyers have handled This represents more than a year corrupt money, and thus the of government spending. Just one “Corruption is bad for business, total amount. tenth of this total, or roughly $3.5 adding up to 10% to the cost billion, could have been used to give of doing business globally, and 8 ...... a basic education to the 5.5 million is equivalent to a 20% tax on foreign businesses. It undermines competition and financial stability, ------and undercuts investments in human capital and sustainable “Every dollar that a corrupt official development… corruption is a global problem.”18 or a corrupt business person puts This behaviour also increases in their pocket is a dollar stolen from the risk posed by terrorism. As articulated by a senior FBI agent a pregnant woman who needs “[c]orruption [in other countries] leads to lack of confidence in health care; or from a girl or a boy government. Lack of confidence in government leads to failed states. who deserves an education; Failed states lead to terror and national security issues.”19 or from communities that need Other violent crime also results: banks may handle money from water, roads, and schools. drug cartels, human traffickers, Every dollar is critical if we are to arms dealers, fraudsters, and other serious criminals, giving reach our goals to end extreme these funds a veneer of legitimacy that they otherwise would poverty by 2030 and to boost not have, and leaving the criminals free to perpetrate their crimes undetected, creating innumerable shared prosperity.” victims around the world, including in rich countries.20 JIM YONG KIM, WORLD BANK PRESIDENT 21 ------

A child receives a vaccination at a rural health centre in India. Money stolen from state coffers by corrupt officials deprives governments of vital funds for health care and other vital services. Flickr: Piyal Adhikary, India

...... 9 ------In 2012, a UK court sentenced of Ibori and his associates, and CASE STUDY: him to 13 years in prison for how they reassured CORRUPT NIGERIAN money laundering.23 Evidence themselves that his money POLITICIANS AND pointed to millions of pounds was not suspicious.26 UK BANKS passing through accounts held Some of these banks were by Ibori and his close associates ------involved in other cases involving at Barclays, Citibank, HSBC, Nigerian politicians. In 2010, During his time as the Governor Abbey National (now Santander) Global Witness revealed how of Nigeria’s Delta State between and two Swiss banks.24 Barclays, HSBC and others 1997 and 2008, James Ibori This was despite his official accepted millions from stole an estimated £157 million annual salary of approximately two corrupt Nigerian state from the state. He blew this on £4,000 and a formal asset governors.27 This was despite a lavish lifestyle including luxury declaration stating that he the fact some of the same homes in the UK and South had no cash or bank accounts banks were exposed in Africa, a £12.6 million private outside of Nigeria. It is illegal 22 2001 as having handled over jet, and a fleet of luxury cars. in Nigerian law for politicians £1.3 billion in suspect to have bank accounts outside funds from Nigerian dictator the country.25 The case raises Sani Abacha.28 serious questions about A child participating in a class at the what, if any, checks the banks ------Young Tajudeen Agbangudu Primary School in Nigeria. Millions of children in Nigeria conducted on the accounts are unable to have an education, yet money lost to corruption could help to pay for this. Flickr: Gates Foundation.

10 ...... ------THE BANKS: A H I S TO RY O F H A N D L I N G STOLEN ASSETS ------

The days when large scale The UK, which has one of the top with major banks receiving record corruption involved briefcases two biggest financial sectors in fines for knowingly breaking laws, full of money stashed in safes or the world, is a clear case in point. despite the same banks already under beds, are largely consigned In 2001, a total of 23 banks receiving several warnings and to history. Corrupt officials no were found to have handled penalties for previous misconduct. longer need to take such measures $1.3 billion in suspect funds from In 2011, the uprisings across because the financial system the Nigerian dictator Sani Abacha. North Africa and the Middle East provides them with easier ways to Fast forward 13 years later, and shone a light on how corrupt hide money, with the added benefit the most recent review by the regimes had held accounts with that the money can come out UK’s regulator in November 2014 banks around the world including looking “clean”. found “significant and widespread in the U.S. and Europe.31 weaknesses in most banks’ The murky history of banks anti-money laundering systems What the evidence does handling corrupt funds is illustrated and controls”.29 overwhelmingly show, is that a on page 12. This is not occasional large number of banks around the behaviour by a few bad apples. A cycle of misconduct has been world are leaving the door wide Instead, the way in which many evident in the U.S. too. In 1999, open for unscrupulous officials who banks have collectively been able a seminal Senate investigation have looted state coffers and for to emerge from one scandal after blew the lid off the way banks a wide range of other criminals to another still powerful enough, and had allowed corrupt leaders, and launder their ill-gotten gains. risk-hungry, sheds light on how their families, to embezzle vast some senior management in the fortunes.30 Recent investigations by sector must view the likelihood of the U.S. authorities have continued facing real consequences. to expose egregious misconduct ...... 11 ------TIMELINE: EXAMPLES OF BANKS BREAKING ************************* 2001****************** Global Witness exposé shows that Barclays, RBS, HSBC, NatWest and UBS

THE RULES Twenty three UK banks are found to have taken millions of pounds41 from

have handled $1.3 billion looted from corrupt Nigerian politicians. ------Nigeria by the late dictator Sani Abacha. He is estimated to have stolen ************************* between $2 and $5 billion.35 Other banks

1990s****************** in the U.S., Switzerland, Liechtenstein, U.S. bank Wachovia pays out over Luxembourg and Austria also handled $200 million for “blatant disregard” Role of banks in taking corrupt funds his loot.36 of anti-money laundering laws in the U.S. becomes increasingly apparent. This included giving Mexican drug Information surfaces that U.S. and 2004******************* traffickers “virtual carte blanche to European banks held billions of dollars finance their operations by laundering42 at stolen by notorious dictators such Riggs Bank in the U.S. collapses when it least $110 million in drug proceeds”. as Fernando Marcos (Philippines), is found to have “turned a blind eye”

Suharto (Indonesia), and Mobutu (Zaire, to evidence of corruption by holding 32 37 JUNE 2011************** now DRC). up to $700 million for President Obiang of Equatorial Guinea, his family and A damning review by the UK banking 1999******************* officials. It is also found to have helped regulator finds massive failures in how former Chilean dictator Augusto Pinochet banks manage money laundering risk. A U.S. Senate investigation blows the hide millions of dollars from U.S. The many findings include that a third of lid off how American banks allow corrupt regulators and evade legal proceedings UK banks are willing to take funds with a leaders and their families to embezzle by international prosecutors.38 very high risk of money laundering if they vast sums. Focusing on Citibank, it uses think they would not get caught, and 75% four cases studies involving Pakistan, 2009******************* are not doing enough to ensure they are43 Mexico, Gabon and Nigeria, to highlight not being used for money laundering. how the bank demonstrably failed Global Witness publishes a report to carry out the required checks to 33 The report exposing how some of the prevent money laundering. ************************* world’s largest banks had done concluded that these failings were rife 34 business with some of the world’s

throughout the private banking sector. A World Bank study of over 200 cases most corrupt regimes.39 of corruption between 1980 and 2010

finds that at least $56.4 billion had been ------2010******************* looted from the public purse of countries around the world. 140 banks handled the

A U.S. Senate investigation shows how proceeds, including over a third44 of the politically powerful foreign officials, world’s 50 current biggest. and their associates, from Angola, Equatorial Guinea, Nigeria and Gabon, brought large amounts of suspect funds ------into the U.S. They used bankers, lawyers and other professionals to

circumvent checks.40 ------

12 ...... JUNE 2014**************

BNP Paribas fined $8.9 billion for willfully and knowingly breaking U.S.

sanctions laws, primarly in relation

to Sudan. According to U.S. regulators, the bank, “with the knowledge of

multiple senior executives – engaged in a long-standing scheme that illegally

funneled money to countries involved 49 in terrorism and genocide.” FEBRUARY 2015********

Commerzbank pays $1.4 billion to AUGUST 2014*********** settle charges it violated U.S. anti- money laundering and sanctions laws.

Standard Chartered receives a It processed over £250 billion of illegal $300 million fine in the U.S. for sanctions payments. “When there was a profit and anti-money laundering failures, to be made Commerzbank turned a the second such offence it is fined for in blind eye to its anti-money laundering 50 two years. compliance responsibilities” said the 2012******************* New York banking regulator.53

HSBC fined $1.9 billion after it admits NOVEMBER 2014******** to widespread anti-money laundering ************************* Bank of Tokyo Mitsubishi receives a violations including taking over $800 second major fine in two years in the million from notorious Mexican and News reports of leaked documents from U.S. After receiving a fine of $250 million HSBC Switzerland dating between 2005- Columbian drug cartels.45 in 2013 for breaking U.S. sanctions 2007 suggest the bank enabled tax laws, the bank is fined $315 million evasion around the world on a massive ************************* for pressuring its auditor scale.54 Reports also allege that the bank PricewaterhouseCoopers (PWC) into took on customers who faced allegations James Ibori, former Nigerian State removing vital information from a report of corruption, drug-running and other

Governor, sentenced in the UK to 13 to regulators about sanctions.PWC 55 51 money laundering. years in prison for money laundering. receive a $25 million fine.

He is estimated to have stolen 2015******************* $250 million from the state between NOVEMBER 2014******** 1997 and 2008 with evidence pointing The United Nations Office on Drugs and to this passing through many banks, The revamped UK banking regulator Crime estimate the amount of money including Barclays, Citibank, HSBC and (Financial Conduct Authority) laundered globally each year is 2 - 5% of Abbey National (now Santander) and two finds anti-money laundering failures global GDP, or $800 billion - $2 trillion in Swiss banks. are still a major concern, with a review current US dollars.56 of small banks finding “significant ************************* and widespread weaknesses in most banks’ anti-money laundering systems ------52 Coutts & Co Bank receive a record and controls.”

UK fine of £8.75 million for anti-money laundering failures.46 2009–2014*************

2013******************* At least nine other penalties were

handed out to banks in the U.S. Three banks in Switzerland, including for anti-money laundering and sanctions a Swiss branch of HSBC, are fined for violations between 2009 and 2014. handling money from associates of the This included Barclays, Credit Suisse, corrupt former Tunisian leader Ben Ali. 47 JP Morgan, Bank of America, and Lloyds TSB among others. MAY 2014*************** ------Credit Suisse fined $2.6 billion after pleading guilty to helping U.S. citizens evade billions of dollars in taxes over

several decades.48 ...... 13 ------A village in Equatorial Guinea, a country where the majority live in extreme poverty while the W H AT BA N K S A R E rulers have plundered its wealth. SUPPOSED TO DO ------

Banks are supposed to carry out After the 9/11 attacks the rules (PEP). A PEP is a senior government checks on their customers. were further amended to deal with official, as well as her or his This is an attempt to stop criminals terrorist finance.57 family members, and associates, from using banks to hide the who could as a result of their These standards have a core set of proceeds of their crimes. position have access to state funds, “know your customer” principles. Known as the anti-money or be in a position to take bribes. At a basic level, they require a laundering principles, these rules Most PEPs are not corrupt bank to check the identity of its were originally introduced in the individuals. For example, every head customers, to be on the look-out 1980s to stop drug traffickers from of state, and thousands of other for suspicious activity, and to report laundering their profits through politicians are PEPs, and banks any suspicions to the authorities. If the financial system. In 1989 an are not prohibited from holding a bank cannot be sure who they are intergovernmental body called accounts for PEP per se. It simply dealing with, or that transactions the Financial Action Task Force means that there is a greater risk it is being asked to make are above (FATF) was set up to agree global that this category of customer board, it should not set up an standards, and over the years it could have acquired their funds account, or accept funds.58 has broadened the rules to include corruptly. As a consequence, banks corruption and organised crime. As a further check to help detect have to identify if their customers the risk of corruption, banks are fall into this category, and if so required to identify if a customer is carry out extra checks on the source 14 ...... a “Politically Exposed Person” of their funds. ------of dollars under the personal countries on mansions, a private CASE STUDY: control of President Obiang.61 jet, a fleet of luxury sports cars, EQUATORIAL GUINEA The subsequent devastating millions of dollars of Michael ------investigation by a Senate Jackson memorabilia, and other committee showed that Riggs luxury goods.63 The report Equatorial Guinea has been Bank had held accounts also revealed how Barclays, ruled by President Obiang and with over $700 million BNP Paribas, Wachovia, his cronies with an iron fist controlled by President Obiang Banque de France and HSBC for over 35 years. They have and his family, and in doing so were involved in processing plundered its oil and timber had “turned a blind eye payments for this spending wealth for their own personal to evidence suggesting the bank spree. This all happened despite enrichment, leaving the rest was handling the proceeds of Teodoro’s official annual salary of the population in dire straits. foreign corruption”.62 The bank of approximately $60,000 to Although the country has was fined $25 million for anti- $100,000. The U.S. authorities a very similar per capita wealth money laundering violations went after $70 million worth to Hungary and Russia, and subsequently sold off. of his assets, and as a result one in ten children die before of settling a legal case with him 59 Global Witness’ 2009 report, their fifth birthday, and in October 2014, were The Secret Life of a Shopaholic, over 75% of citizens live in able to recover approximately 60 later exposed part of extreme poverty. $30 million.64 the shopping spree that the Working with the LA Times President’s son, Teodoro ------in 2003, Global Witness Obiang, went on, spending tens revealed that Riggs Bank in of millions of dollars in three Washington DC held millions

------“If you know there’s no landing space to land your plane, you don’t takeoff in the first place. It’s the same with money: if there’s nowhere to land it once you’ve stolen it, you

can’t steal it”.

NIGERIAN ANTI-CORRUPTION INVESTIGATOR, TALKING ABOUT THE ROLE OF BANKS 65 Teodoro Obiang, Vice President and son of the President of Equatorial (on left). Flickr: ------Embassy of Equatorial Guinea. French authorities seizing some of the fleet of luxury cars owned by Teodoro Obiang. Flickr: nARCOTO ...... 15 ------THE WRONG INCENTIVES – W H Y BA N K S ENABLE CORRUPTION ------At present, banks and bankers or financial incentives. This in turn to over six hundred times less than are not properly incentivised to tempts those in charge to keep the the record $8.9 billion penalty for turn down corrupt funds. There are systems for spotting suspect funds sanctions-related offences the U.S. several reasons for this. weak, look the other way when levied on BNP Paribas.68 faced with tough decisions, or even Insufficient penalties There are some signs that the FCA’s at times knowingly help corrupt for wrongdoing approach might change. After its officials and other criminals. inception in 2013, public comments At the heart of the problem is a Weak Enforcement by senior officials suggested they tension between banks’ basic are to pursue actions against business model of opening There is significant evidence to individuals. The start of proceedings accounts, taking deposits and show that financial regulators are against bankers allegedly involved processing transactions, and their not adequately enforcing the rules. in manipulating foreign exchange legal and moral obligation to turn In the UK, the Financial Services rates for their own gain69 suggests down and report money they Authority (FSA) and the Financial this might be happening. However, suspect to have been made through Conduct Authority (FCA), which the regulator should extend this corruption and other illegal means. succeeded it in 2013, have found to holding senior executives that banks are consistently failing If we want to promote good responsible, including for anti- to take anti-money laundering risks behaviour for banks and bankers, money laundering failures. The FCA seriously. The FCA’s most recent the right incentives are essential. has also started to use a potentially review, published in November However, with the exception of the smarter type of enforcement for 2014, looked at how the regulators’ U.S. in recent years, banks are rarely anti-money laundering violations. actions had affected the way punished for taking suspicious In 2014 it persuaded six banks banks dealt with the risk of money funds, and even where penalties to agree to limit their business laundering. It found “significant are handed down, they are weak. activities with “certain types of high and widespread weaknesses in Fines are often seen as the cost risk customers” until they have most banks’ anti-money laundering of doing business, and are a corrected problems,70 and in 2015 systems and controls.”66 liability that can be passed on to it required the Bank of Beirut to shareholders, while guilty decision This is not much of a surprise given stop taking on customers from high makers remain unscathed, and may the relatively small size of penalties risk jurisdictions for four months.71 even be rewarded with promotion handed out to date. The largest to While the details of these schemes be given for anti-money laundering are still little-known, and it is too or sanctions violations in the UK early to predict the outcomes, it will was £8.75 million for Coutts & be interesting to see if this type of 16 ...... Company, in 2012.67 This equates experiment reduces the problem. The fact that for many years the usually as part of either a Non- important link between decision UK has arguably had the strictest Prosecution Agreement (NPA) or a making and accountability. enforcement regime after the U.S., Deferred Prosecution Agreement and yet UK banks are still failing (DPA). These are settlements On the rare occasions when to implement the rules properly, where the authorities agree to individuals have been held shows that globally, regulation is postpone criminal charges, either personally accountable by incredibly weak. This can be seen conditionally or indefinitely. regulators, compliance staff from the approach of the Swiss On the whole these settlements are usually the target. Only four banking regulator, FINMA. In 2011, have not included sanctions against individual staff members at Swiss authorities froze $915 million individual executives. The DPA banks operating in the UK have worth of assets from the deposed, reached with HSBC in 2012 was received financial penalties for corrupt leaders of Tunisia, Libya, a particularly controversial case their roles in breaking anti- and Egypt.72 Yet when they found leading many to claim that banks, money laundering rules; all were that four Swiss banks that had and their executives, were being compliance or audit staff, and 75 failed to do the required checks treated too leniently and to accuse were fined £20,000 or less. in relation to the Tunisian regime’s the authorities of acting as if many Global Witness has been regularly assets, the fines given to three banks were “too big to jail”.74 told by compliance staff that of them totaled a mere 193,000 they do not have the authority to Swiss Francs ($211,000)73: less A lack of personal responsibility turn down business on the basis than 0.03% of the stolen state for senior executives of money laundering or other risks, money Swiss banks were known Responsibility for compliance and their recommendations to do to have sheltered. with anti-money laundering so are often overruled. This has The U.S. authorities stand out as and other regulations is usually been evident in some of the high having handed out the strictest allocated to compliance teams, profile misconduct cases in recent penalties to banks. But their rather than to senior executives, years. In written evidence to approach still has major flaws. who actually wield power within the UK parliament, David Bagley, With a few exceptions, outlined banks over what customers they who led on compliance at HSBC in the next section on personal take. This is a serious problem during the period of the failings responsibility, these have because it gives compliance staff exposed by the U.S. Senate consisted of financial penalties none of the authority but all of stated “as the Head of Group given to banks as corporations, the responsibility, breaking the Compliance my mandate was

(Above) Relatives at the funeral of Miguel Carcamo, one of the 72 immigrants in Mexico killed by drug gang members in one episode. Over 35,000 people were murdered by such gangs during the time HSBC was taking money from one of the biggest. ©Edgard Garrido /Reuters/Corbis.

(Left) HSBC executives called before a U.S. Senate committee hearing in 2012 about anti-money laundering failures at the bank, which it later received a $1.9 billion penalty for. Enforcement actions against banks have rarely targetted individual executives. Flickr: Talk Radio News Service...... 17 limited to advising, recommending it is important to remember that sanction on senior staff as an and reporting. My job was not – banks do not commit misconduct – enforcement tool is encouraging, and I did not have the authority, bankers do”.79 if this helps to set a precedent. resources, support or infrastructure In addition, as part of the 2014 More U.S. agencies, including the – to ensure that all of these action against Credit Suisse for Department of Justice, and others global affiliates followed the aiding tax evasion, the NYDFS around the world should begin Group’s compliance standards”.76 required it to terminate the to adopt a similar commitment to The problem was highlighted in contracts of three executives targeting individuals. In addition, the 2012 scandal involving the or senior managers who were all regulators with the power to bank, when Department of Justice previously indicted but were still use criminal proceedings, should documents revealed how warnings being paid by Credit Suisse.80 start to do so in the most egregious from compliance staff about the cases. If this began to happen problem of taking drug money were In May 2015, the Federal Reserve we could see a sea change in the ignored by senior executives.77 Board (another US regulator) barred attitude of senior bankers and those three individuals and two The BNP Paribas sanctions busting the level of misconduct perpetrated more from working in the banking case is another prime example. by their banks. industry.81 The impact of this is Department of Justice documents likely to be very limited given reveal that senior executives at It is not until senior bankers start to that all five have previously been the bank overruled advice from lose their jobs, have their bonuses indicted, are not working in the U.S., their compliance team by accepting withheld or clawed back, get fined, have not entered the US to answer billions of dollars in transactions risk being barred from practice, the charges,82 and it appears originating from Sudan, because of and in extreme cases face criminal their extradition from Switzerland the profits to be made (see the case sanctions including jail, that many has not even been requested.83 study on page 7). banks will start to take anti-money However, the fact that another laundering and other laws as The New York state banking regulator has used a personal seriously as they should. regulator (NYDFS) has been one of the few regulators to go beyond ------the usual approach of fining banks as institutions, but not holding “Individuals responsible for individuals to account. In 2014, it required banks in two high profile these failures are not being held cases to fire, or otherwise discipline, key staff. In the BNP Paribas accountable….By allowing these scandal, it required at least thirteen staff had to leave the bank, five individuals to walk away without of which were senior executives, including the Chief Operating any real punishment, the Officer.78 When announcing this action, Benjamin Lawsky the Department [of Justice] is declaring head of NYFDS explained that “in order to deter future offenses, that crime actually does pay.”

CHUCK GRASSLEY, U.S. SENATOR, REPUBLICAN, IOWA. 84 ------18 ...... ------WEAK ENFORCEMENT: KEY STATS THE UK AS AN EXAMPLE ------In 2001, 23 banks were found to The UN Office on Drugs and Crime have handled $1.3 billion stolen estimates the amount of money $800bn by Nigerian dictator Sani Abacha. laundered globally in one to There is no record of penalties year is $800 billion – $2 trillion $2tn given to any of them. (2 – 5% of global GDP).

A World Bank study looking at a sample of 200 cases of large scale $56.4bn corruption found that governments $1.3bn were at least $56.4 billion poorer.

In 2011 the UK regulator found 140 banks handled the proceeds major failings with banks of corruption from these cases, upholding anti-money laundering including more than a third regulations, including that 75% of the current 50 biggest banks in were not doing enough to prevent the world. money laundering.

Authorities need to start Until the people who run holding senior bankers banks start to lose bonuses, personally responsible when face personal fines, suspension, their banks violate anti-money or in the most extreme cases laundering regulations. be charged criminally and 75% face prison sentences, they will not take the rules seriously.

The UK has arguably had the strictest enforcement after the U.S. and yet despite this the biggest anti-money laundering or sanctions related fine it has given to a bank is £8.75 million, over 600 times less than the U.S.

£8.75m

US $8.9bn ------described the bank’s culture accounts to some foreign CASE STUDY: as “pervasively polluted”.86 banks.90 During the time HSBC HSBC – DRUG CARTELS, took money from one of the Some of the more extreme DISREGARDING TERRORIST largest and most vicious failures included ignoring LINKS AND $200 TRILLION Mexican drug cartels, over warnings from Mexican OF FAILED CONTROLS 35,000 people were killed at authorities that they had a ------the hands of drug gangs in drug lord on tape saying HSBC Mexico.91 These were often In 2012, HSBC agreed to pay Mexico was the place to brutal slayings involving torture, 87 $1.9 billion in settlements and launder money, and knowingly beheading and the public penalties to the U.S. authorities turning off controls on over hanging of corpses.92 Whole after admitted to systematic $200 trillion of wire transfers communities and regions anti-money laundering failures so that none of these were terrorised. which led the bank to take transactions were appropriately at least $800 million from screened for money laundering As part of its settlement with notorious Latin American drug risk.88 This happened despite the US authorities, HSBC is cartels, and break sanctions the fact the bank had received subject to five years of laws.85 The Chair of the Senate numerous official warnings to monitoring to check that it investigations committee improve anti-money laundering starts upholding the rules. control failures, including A press report in January 2015 30 between 2005 and 2006.89 suggested that a year into Bullet holes and blood on a car windscreen from an assassination of a police officer in Mexico. The killing The Senate investigation the monitoring the bank is still was part of drug war violence involving the 93 Sinaloa Cartel which HSBC admitting taking money from. also found that HSBC having problems. © Erich Schlegel/Corbis had disregarded terrorist links by providing correspondent ------

20 ...... 21 ------T H E OT H E R FACTORS ------

ACCESSING THE hold accounts for.97 Therefore them (one estimate suggests that RIGHT INFORMATION if banks are not required to check the number is in the low tens of this information then they will not millions).100 These gaps could be Banks are required to know who be taking the first basic step in filled in part by improved access their customers are so that they the process of identifying whether for banks to asset declarations by are able to identify any risks. This is their customers pose a high risk PEPs, information collected by civil known as customer due diligence.94 of being corrupt officials or other society, the International Monetary money launderers. Fund, or development bank However, this can be very difficult contracts. Banks should also share because of the prevalence of Encouraging new policy PEP information more widely within anonymous companies and trusts. developments should help to their own company group. These legal smokescreens for combat the problem with suspect funds makes carrying identifying beneficial owners. “DE-BANKING” out customer due diligence more UK legislation is due to be passed difficult and thus less likely.95 in mid-2015 to establish a public There were signs at the end of Anonymous companies can do registry of beneficial ownership 2014 that the stricter penalties by business like any other company, of UK companies. In 2014 the the U.S. authorities were provoking but it is incredibly difficult to find EU also agreed to create similar some responses, including out who the actual human being(s) registries, with full access for banks controversial ones, from banks. controlling and benefiting from carrying out due diligence, and more Many banks have claimed that as them are (known as the “beneficial limited access for members of the a result of the larger fines they are owners”).96 However, if banks public.98 The U.S. Treasury has being forced to take a highly risk are not able to establish the real also issued a proposed rule which averse approach (also called owners of accounts then they will give banks the responsibility ”de-risking”). Some banks argue should not open or continue with to identify the beneficial owners that an unintended consequence is those accounts. of companies it does business that this is hurting disadvantaged with, which will help to remove that people around the world, because Some countries do not legally current loophole in U.S. laws.99 it has led them to withdraw require banks to check the services from people and Banks also face problems identity of all types of customer. businesses in poor countries, and accessing information about For example, in the U.S., banks sometimes from entire countries Politically Exposed Persons (PEPs). are not obliged to find out in every (also called “de-banking”).101 Commercial databases used by case who the beneficial owners are some banks do not contain a full It is true that significant challenges of a company or trust that they list of PEPs, and a worldwide list of exist for banks trying to manage PEPs can be difficult to establish risks with some customer groups 22 ...... because there are so many of and high risk countries.102 However, the inter-governmental body and into the unregulated banking that they will be used for money that sets the money laundering sector, where ill-gotten gains could laundering, terrorist financing and standards, the Financial Action Task be moved around without any other illegal activities, and to design Force (FATF), has condemned this checks and chance of detection.103 an appropriate and smart system approach. It has pointed out that to detect and manage this risk. For banks to argue these fines are banks should not be withdrawing As highlighted by FATF and the UK too big or regulation is too tight is, from whole sectors en masse, regulator,104 they are not supposed at best, missing the point. At worst, because this is applying the rules to avoid the risk altogether. Some it is an attempt to distract attention in the wrong way. Rather, the rules banks are engaging constructively from some huge and extremely require banks to judge whether to to work with governments and damaging failures. Banks claim terminate or reject customers on a others to find solutions to some they are worried that they will now case-by-case basis. Crucially these of key problem areas, for which be hit hard for honest mistakes, rules have guidelines which should they deserve significant credit, for or criminal money occasionally make sure their application does example the British banks played a slipping through otherwise robust not result in poor and vulnerable key role in helping charities deliver systems. There is no evidence so far groups being denied access to vital humanitarian aid in Syria.105 of banks being punished with big banking services. FATF has also But there is still a long way to go; fines without serious wrongdoing – warned that the mass withdrawal if banks, governments and in each case, the severity of services could lead to more regulators worked closely together of the punishment fits the crime. money laundering and terrorist a more intelligent and flexible financing because it would drive The rules require banks to do a approach would result. people and businesses underground sensible assessment of the risk THE OTHER ACTORS ------Banks are just one of the facilitators of corruption; a range of other “Firms must take their responsibility professionals such as lawyers, accountants and estate agents to reduce the risk of financial crime also play a role. When corrupt officials or other criminals set up seriously… That is not about box an anonymous company to hide behind, buy property or other high ticking or wholesale de-risking. It is value goods, or find other ways to launder their dirty money, these about firms getting the basics right – transactions usually require the services of such professionals.106 understanding their customers, the In many countries these other risks they pose and managing those sectors are even less well regulated than banks, and it is important that governments take action to risks proportionately and sensibly.” ensure that the full range of professionals who potentially play TRACEY MCDERMOTT, FCA DIRECTOR OF ENFORCEMENT a role in enabling money laundering AND FINANCIAL CRIME.107 are prevented from doing so. ------

...... 23 ------RECOMMENDATIONS ------

A range of action is needed from or the lack of a clear provision in However, it is vital that the regulators, governments and the the law to hold them accountable. government ensures the regulator banking sector itself. Governments should address properly enforces this new regime this by requiring each bank to when it comes into effect in March GOVERNMENTS AND name a senior executive who has 2016. This must involve penalising REGULATORS SHOULD: overall responsibility for their bank those senior individuals if and when Hold senior bankers upholding anti-money laundering their bank violates AML regulations personally responsible when rules. They should also lower and they fail to take reasonable banks violate anti-money the threshold of proof to a more steps to prevent this. laundering regulations. reasonable level to establish liability As U.S. laws stand, officials have for senior executives, if this problem claimed it is extremely difficult This is perhaps the single most applies in their country. important solution. Until the for them to establish legal liability 109 people who run banks start to The EU has agreed an updated for executives, which is lose bonuses, face personal Anti-Money Laundering Directive something that lawmakers should fines, suspension, or in the most which should give senior executives look to address. extreme cases be criminally overall legal responsibility for Adopt a stronger and smarter charged and if found guilty face the issue. The agreed text states approach to enforcing anti-money the prospect of jail, they will not that banks are required where laundering regulations. take the rules seriously. applicable to “identify the member of the management board who is Regulators need to review and Remove legal impediments responsible for the implementation investigate the compliance of preventing authorities from 108 of the… Directive.” banks to anti-money laundering holding senior executives regulations on a regular basis, and personally liable. In 2015, the UK regulator finalised the details of the Senior Managers take action much more consistently In many countries it is difficult for Regime, a new measure to require when they uncover wrongdoing. regulators and other authorities banks to name a senior banker as Penalties need to be increased to to show that senior executives responsible for each key risk they provide an effective deterrent. In are legally responsible for their face. Importantly this includes addition to holding individual senior bank’s misconduct. This can be each bank allocating to a senior bankers accountable, financial because of the unreasonably high individual the overall responsibility penalties for banks need to be more threshold of proof required and/ for ensuring AML regulations are in line with the seriousness of the upheld. This has the potential to be wrongdoing. Although the U.S. has a ground breaking measure, and is increased its financial penalties in 24 ...... one Global Witness welcomes. recent years, these relatively high fines are often seen as the cost of incurred in searching for and explanations of the source of their doing business. Smarter and more investigating this information.111 wealth which seem plausible, banks innovative penalties also need to It is essential that these registries should require high risk PEPs to be used. This could include are publicly accessible too, prove the legitimacy of their source restrictions and bans for banks allowing journalists, citizens groups of funds. They should turn new from dealing with foreign PEPs, and others to scrutinise them business away and close existing other certain types of customers or and spot instances of corruption accounts if there is any room business activities over a period of that would otherwise be missed. for doubt. A senior executive should time. The very recent imposition sign off on these annual reviews of penalties like these in the U.S. Banks can also be helped by as well as give approval for opening and UK need to be explored further, all countries introducing asset the account in the first place. At a and learning from them shared. declarations for PEPs. This could minimum, banks should be required They have the potential to provide include information collected by to know if it is illegal for PEPs from a powerful balance to the business civil society, and that available a certain country to have foreign incentives banks have for taking on from IMF or development bank accounts. If this is the case, high risk clients. contracts, and should be accessible it should at the very least raise a red to all banks around the world. flag, and the bank should consider Establish anti-money laundering refusing to open the account. regulations where they currently BANKS SHOULD: do not exist. Work closely together to solve Appoint someone from either key problems. board or senior management In some countries around the world level accountable for anti-money Instead of withdrawing services to governments have not adequately laundering regulations, as part whole countries or whole groups of introduced the full range of anti- of a broader culture change. customers, and complaining this is money laws stipulated by the a necessary response to regulators globally agreed standards. This is The board should make it clear imposing stricter penalties, banks especially true around PEPs, with that complying with anti-money should cooperate with each other, FATF reporting in 2010 that over laundering and other regulations is governments, regulators, civil 80% of the 124 countries assessed a key standard all employees must society and others to meet the by them were not compliant with aspire too. This should be part of challenges involved. This includes the relevant recommendations.110 the broader reforms recommended using their collective expertise to Those governments must introduce by Transparency International in take a lead in developing countries the appropriate and full regulations. which banks should change their by collaborating on efforts to prevailing culture of placing short- Remove obstacles for banks. provide banking services to poor term profit before the interests people and small business that of society. Some ways this can Governments need to make it easier would benefit from them, while at be done include through bonuses for banks by introducing registries the same time taking proportionate, and pay being related to integrity of the beneficial ownership of and risk-based measures to tackle measures, and the hiring process companies and trusts, as is financial crime without cutting involving integrity tests.112 happening in the EU. This will allow people off. banks to check the identity of the Enhance scrutiny of PEP accounts. real people who ultimately benefit from accounts held in the name As a first step, this should include of corporate entities. Two cost- banks conducting an annual review benefit studies have shown this will of the PEP accounts they hold. It is also save banks and governments also vital that banks flip the burden of proof so that instead of accepting money by saving time and costs ...... 25 For Suharto see Time Asia 24 May 1999 http://content.time.com/ ------time/world/article/0,8599,2056697,00.html ; For Mobutu see See the paper by Andrea D. Bontrager Unzicker “From Corruption to Cooperation: Globalization Brings a Mulitilateral Agreement Against Foreign Bribery” in the Indiana Journal of Global Legal Studies Vol 7 issue 2 Article 12, Spring 2000, p.659, ENDNOTES http://bit.ly/1ewIsqP ; for Marcos see CNN “Imelda Marcos withdraws from Philippine presidential race” 29 April 1998 http://cnn.it/1PO95bB ; for Abacha see the separate entry on his case in endnotes 35 and 36.” ------33 See the U.S. Senate Permanent Sub-committee on Investigations’ 1999 report “Private Banking and Money Laundering: A Case Study of Opportunities and Vulnerabilities” p872 and p 934 (aka p63) http://bit.ly/1wDdweg ------34 Ibid p889 (aka p18). ------35 For the estimate of funds stolen see “Repatriation of looted state assets: selected case studies and the UN Convention against Corruption.” Tim Daniel, 2004, pp 101-2. See more at: http://www.u4.no/recommended-reading/repatriation-of-looted- state-assets-selected-case-studies-and-the-un-convention- against-corruption/#sthash.RIPsP2Dr.dpuf ------36 For the involvement of banks from Switzerland, Liechenstein, and Luxembourg, see ibid pp 101-2. For the involvement of UK and U.S. banks see the BBC article“Abacha accounts to 1 From Prime Minister Cameron’s speech, July 2015 “Tackling the UNESCO report from 2013: http://unesdoc.unesco.org/ be frozen” October 2001. http://news.bbc.co.uk/1/hi/world/ corruption: PM speech in Singapore” https://www.gov.uk/ images/0018/001885/188561e.pdf For the figure of 5.5 million africa/1576527.stm government/speeches/tackling-corruption-pm-speech-in- girls missing an education see the Nigerian Voice article about ------singapore a UNESCO report in 2013 http://www.thenigerianvoice.com/ 37 See the U.S. Senate Permanent Subcommittee on ------news/126463/1/nigeria-accounts-for-55m-out-of-school-girls- Investigations report “Money laundering and foreign corruption: 2 See the Global Witness report from 2009 “Undue Diligence” says-.html enforcement and effectiveness of the Patriot Act” http://www. https://www.globalwitness.org/campaigns/corruption-and------hsgac.senate.gov/imo/media/doc/ACF5F8.pdf?attempt=2 money-laundering/banks/undue-diligence/ 18 See the B-team report “Ending Anonymous Companies”, ------Executive Summary p1 http://bit.ly/1OmXxf4 The B Team is a 38 See ibid, pp18-19. 3 In a letter from Senator Elizabeth Warren to the Department of global initiative that brings together international CEOs and ------Justice, Federal Reserve and SEC, May 2013 http://www.warren. business leaders to “make business work better.” 39 See “Undue Diligence” https://www.globalwitness.org/en-gb/ senate.gov/documents/LtrtoRegulatorsre2-14-13hrg.pdf ------campaigns/corruption-and-money-laundering/banks/undue------19 From an interview with Jeffrey Sallet, Chief of the FBI’s Public diligence/ 4 For example, for a discussion of a wider group of sectors Corruption and Civil Rights section http://www.apnewsarchive. ------see our TEDx talk “How London Fuels Corruption” http://bit. com/2015/FBI-forms-new-squads-to-address-international- 40 See the U.S. Senate Permanent Subcommittee on ly/1qRxCMa; for the role that company service providers play and corruption-that-affects-the-United-States/id-81209cb974204a Investigations, “Keeping Foreign Corruption out of the United recommendations for dealing with this see both our report “Grave 2cb14d783d54f02cfc States executive summary, p1. (the PDF of the report can be Secrecy” https://www.globalwitness.org/en-gb/campaigns/ ------found via a link on this page: http://www.resourcegovernance.org/ corruption-and-money-laundering/anonymous-company- 20 See our report “The Great Rip Off” for an example of cases training/resource_center/keeping-foreign-corruption-out-united- owners/grave-secrecy/, and our “Great Rip Off Map” with which harmed people across the United States https://www. states-four-case-histories examples from around the world http://bit.ly/1BRgP4U globalwitness.org/en-gb/campaigns/corruption-and-money------laundering/great-rip-off/ 41 See the Global Witness report “International Thief Thief” p1, 5 See the New York Department of Financial Services press ------https://www.globalwitness.org/campaigns/corruption-and- release on the BNP Paribas case, June 2014, http://www.dfs. 21 See endnote 12. money-laundering/banks/international-thief-thief/ ny.gov/about/press/pr1406301.htm ------22 See the Daily Mail article from April 2014 42 See the Wall Street Journal “Wachovia settles money- 6 See the DoJ press release http://www.dfs.ny.gov/about/press/ http://www.dailymail.co.uk/news/article-2600746/Former- laundering case” March 2010 http://www.wsj.com/articles/SB100 pr1406301.htm Wickes-cashier-Nigerian-state-governor-defrauded-worlds- 01424052748704059004575128062835484290 ------poorest-people-157million-not-pay-penny.html#ixzz3LUvUvN6K ------7 See endnote 5. ------43 See the FSA’s 2011 review “Banks’ management of high------23 See the Crown Prosecution Services blog “Former Nigerian money laundering risk situations” p4 http://www.fsa.gov.uk/pubs/ 8 See the Department of Justice Statement of Facts BNP Paribas governor, James Ibori, sentenced to 13 years” from April 2012 other/aml_final_report.pdf case paragraph 20 http://1.usa.gov/1TfxeFw http://blog.cps.gov.uk/2012/04/former-nigerian-governor-james------ibori-sentenced-to-13-years-comment-from-head-of-cps- 44 For a detailed explanation of the calculation of these figures 9 Ibid paras 31-33. fraud-group.html and the 19 of the top 50 banks involved see endnotes 14 and 15. ------10 Ibid paras 28 and 29 outlines how senior executives met 24 See the Global Witness press release from April 2012 45 See the U.S. Department of Justice press release, 11 December shortly after this Memorandum was signed and worked out a https://www.globalwitness.org/en-gb/archive/sentencing- 2012. http://www.justice.gov/opa/pr/2012/December/12- scheme to continue dealing with sanctioned entities. former-nigerian-politician-highlights-role-british-and-us-banks- crm-1478.html ------money-laundering/ ------11 See the press release in endnote 5. ------46 See The Independent “Coutts bank fined 8 million by FSA” ------25 See the Global Witness report “International Thief Thief” March 2012 http://www.independent.co.uk/news/business/ 12 See the World Bank press release December 2013 http://www. October 2010, p3. https://www.globalwitness.org/sites/default/ news/coutts-bank-fined-8m-by-fsa-7585721.html worldbank.org/en/news/press-release/2013/12/19/corruption- files/pdfs/international_thief_thief_final.pdf ------developing-countries-world-bank-group-president-kim ------47 See Reuters “Swiss Watchdog chides 3 banks over Tunisia ------26 See the press release in endnote 24. accounts –TV” http://www.reuters.com/article/2013/10/21/ 13 See the World Bank report “Puppet Masters” 2011, ------swiss-banks-idUSL5N0IB14W20131021 Appendix B. http://star.worldbank.org/star/sites/star/files/ 27 See the Global Witness report “International Thief Thief: ------puppetmastersv1.pdf how British banks are complicit in Nigerian corruption” October 48 See the Department of Justice press release, May 2014 http:// ------2010 http://www.globalwitness.org/sites/default/files/pdfs/ www.justice.gov/opa/pr/credit-suisse-pleads-guilty-conspiracy- 14 This is an analysis of the data in the World Bank “Puppet international_thief_thief_final.pdf aid-and-assist-us-taxpayers-filing-false-returns Masters” report (2011). For a detailed explanation of the ------calculation of this figure see http://nbviewer.ipython.org/github/ 28 Ibid, page 5. 49 See the New York Department of Financial Services press noelmas/puppet-master-analysis/blob/master/Puppet%20 ------release on the BNP Paribas case, June 2014 http://www.dfs. Masters%20Calculations%20V3.ipynb We have categorised 29 See the FCA’s press release announcing the findings of its ny.gov/about/press/pr1406301.htm individual banks as group entities as whole, rather than individual 2014 review http://www.fca.org.uk/news/fca-finds-small-firms------branches of the same bank in different countries. need-to-manage-financial-crime-risks-more-effectively 50 See the Telegraph “Standard Chartered pays $300m ------over money laundering failures” http://www.telegraph.co.uk/ 15 The list of top 50 banks used for this is from the Financial 30 See the U.S. Senate Permanent Sub-committee on finance/newsbysector/banksandfinance/11044353/ Times “The Banker Database” top 1000 banks, published in July Investigations’ 1999 report “Private Banking and Money Standard-Chartered-pays-300m-over-money-laundering- 2014 http://www.thebankerdatabase.com/index.cfm/top50/ Laundering: A Case Study of Opportunities and Vulnerabilities” failures.html ------http://bit.ly/1wDdweg ------16 See the Guardian “Nigeria: how to lose $35bn” November, ------51 See the press release from the New York Department 2013 http://www.theguardian.com/world/2012/nov/13/nigeria- 31 Anthea Lawson, ‘Don’t make it easier for dictators to of Financial Services: http://www.dfs.ny.gov/about/press/ oil-corruption-ridabu steal’, The Financial Times, 23 February 2011 http://www. pr1411181.htm ------ft.com/cms/s/0/e23b6baa-3f91-11e0-a1ba-00144feabdc0. ------17 This is based on the UNESCO figures which estimate html#axzz3af8WICVP 52 See the FCA’s press release “FCA finds small firms need to that five years of schooling, the agreed level for a basic ------manage financial crime risk more effectively” http://www.fca. education, costs approximately $125 per pupil per year. See 32 See the Transparency International’s org.uk/news/fca-finds-small-firms-need-to-manage-financial- “Global Corruption Report” 2004, p13. Unfortunately such crime-risks-more-effectively estimates vary considerably from source to source, so exact ------amounts of stolen funds are impossible to prove with the 53 See the NYDFS press release, March 2015 http://www.dfs. information available http://www.transparency.org/whatwedo/ ny.gov/about/press/pr1503121.htm publication/global_corruption_report_2004_political_corruption ------26 ...... For information surfacing about the different leaders see: 54 For the allegations relating to tax evasion see the collated articles at the Guardian http://www.theguardian.com/ one for £17,500 for the relatively junior role of a Money undertaken by Deloitte on the third update to the EU’s Anti- news/series/hsbc-files; for report on dealing Laundering Reporting Officer at Habib Bank in 2012, Money Laundering Directive. See pp63-64 http://ec.europa.eu/ with corrupt officials and other criminals see the see Herbert SmithFreehills http://www.herbertsmithfreehills. internal_market/company/docs/financial-crime/20110124_ Guardian report http://bit.ly/1SaGxYZ com/-/media/HS/L30%20May%20201281314v2.pdf; study_amld_en.pdf ------and the other, £14,000 also for a Money Laundering Reporting ------55 See the Guardian, “HSBC boss says bank Officer, at Alapri UK in 2010, see http://www.fsa.gov.uk/pages/ 97 See the Wall Street Journal article “Proposed Rule to Force shamed by Swiss tax avoidance” Feb 2014 library/communication/pr/2010/077.shtml Banks to Identify Beneficial Owners July 2014 http://on.wsj. http://www.theguardian.com/business/2015/feb/23/hsbc-chief------com/1nNxJtx paid-7m-pounds-last-year-profits-slide-tax-avoidance-apology 76 As quoted by Lord McFall of Macluith during an evidence ------session of the UK’s Parliamentary Commission on Banking 98 See the FT article “EU Agrees on New Anti-Money Laundering 56 See the UNODC website, page “Money-Laundering and Standards featuring HSBC executives in February 2013, Terms” Dec 2014 http://on.ft.com/1EdTUNX Globalization”: http://bit.ly/1CHDprz accessed October 2015 See Q3780 in the Hansard record of this session: http:// ------www.publications.parliament.uk/pa/jt201314/jtselect/ 99 See the U.S. Department of Treasury, FinCEN notice of 57 See the Financial Actions Task Force recommendations http:// jtpcbs/27/130206.htm rulemaking, summary, p45152 http://www.fincen.gov/statutes_ www.fatf-gafi.org/topics/fatfrecommendations/documents/fatf------regs/files/CDD-NPRM-Final.pdf recommendations.html 77 See the Department of Justice “statement of facts” for the ------HSBC case note 34 onwards http://www.justice.gov/sites/default/ 100 See the post on Archanys Resarch Blog “Let’s talk about 58 See the Financial Action Task Force Recommendations, files/opa/legacy/2012/12/11/dpa-attachment-a.pdf PEPs: an Arachnys briefing note on political exposure” http://blog. Section D “Preventative Measures” and in particular ------arachnys.com/2014-04-03-lets-talk-about-peps recommendations 9-12 (p14-16). http://www.fatf-gafi. 78 See the press release by the New York Department of ------org/media/fatf/documents/recommendations/pdfs/FATF_ Financial Services June 2014 http://www.dfs.ny.gov/about/press/ 101 See the British Bankers Association online briefing from Recommendations.pdf pr1406301.htm 14 November 2014 which refers to its private report on the ------issue https://www.bba.org.uk/news/bba-brief/bba-brief-14- 59 See the 2013 UNDP Human Development Index figures. Table 79 Ibid. november-2014/#.VOTHty70Guk 1 for income per capita, table 7 for child mortality rates, which ------can be downloaded at http://hdr.undp.org/en/content/human- 80 See the NYDFS June 2014 press release http://www.dfs. 102 See the blog by the Centre for Global Development on this development-index-hdi-table ny.gov/about/press/pr1406301.htm issue http://www.cgdev.org/blog/fear-being-outed-why-banks------are-deserting-developing-country-clients 60 This latest UNDP Human Development Index does not contain 81 See the Federal Reserve Press release, May 2015 ------updated figures for the number of people in living in extreme http://www.federalreserve.gov/newsevents/press/ 103 See FATF’s press release http://www.fatf-gafi.org/topics/ poverty (under $1.25 per day). The 70% figure quoted is from the enforcement/20150511a.htm fatfrecommendations/documents/rba-and-de-risking.html IMF report on Equatorial Guinea from 2008, p4-6 which says that ------77% of the population fell below this poverty line. http://www.imf. 82 See the FCPA blog, May 2012, http://www.fcpablog.com/ 104 For FATF see the paragraph above and also its updated org/external/pubs/ft/scr/2009/cr09102.pdf blog/2015/5/12/credit-suisse-saga-federal-reserve-bars- guidelines for financial inclusion, in its paper “Revised ------fugitive-private-ban.html# Guidance on AML/CFT and financial inclusion”, Feb 2013 http:// 61 See Ken Silverstein “Oil boom enriches African leader. Los ------www.fatf-gafi.org/topics/financialinclusion/documents/ Angeles Times January 2003 http://articles.latimes.com/2003/ 83 See this Washington Post blog which summarises and links revisedguidanceonamlcftandfinancialinclusion.html For the UK jan/20/nation/na-riggs20 ; and Global Witness press release to a March, 2014 letter by Senators McCain and Levin to Assistant regulator see the press release in the endnote above. January 2003 “Does US bank harbor Equatorial Guinea’s secret Attorney General James.M.Cole asking why extradition has ------accounts?” https://www.globalwitness.org/en-gb/archive/ not been sought http://www.washingtonpost.com/blogs/ 105 See the British Bankers Assoction paper, Dec 2013, https:// does-us-bank-harbour-equatorial-guineas-oil-millions-secret- wonkblog/wp/2014/03/19/levin-and-mccain-to-doj-extradite- www.bba.org.uk/policy/financial-crime/sanctions-compliance/ accounts-us-department-justice/ swiss-bankers/ getting-aid-to-syria/ ------62 See the U.S. Senate Permanent Subcommittee on 84 See the letter by Senator Chuck Grassley to the Department of 106 See endnote 4 for examples of how Global Witness has Investigations report “Money laundering and foreign corruption: Justice, December 2012 http://1.usa.gov/1kgreQO highlighted this in the past. And for a specific focus on the role enforcement and effectiveness of the Patriot Act” http://www. ------of estate agents see the Transparency International report hsgac.senate.gov/imo/media/doc/ACF5F8.pdf?attempt=2 85 See the US Department of Justice press release, 11 December “Corrupt Capital: How the secret ownership of property in London ------2012 http://1.usa.gov/1BHWKvH and the rest of the UK facilitates global corruption” 4 March 2015 63 See Global Witness “The Secret Life of a shopaholic” p10-15 ------http://issuu.com/transparencyuk/docs/ti-uk_corruption_on_ https://www.globalwitness.org/en-gb/campaigns/corruption- 86 See the U.S. Senate Permanent Subcommittee on your_doorstep/1?e=10896477/11687028 and-money-laundering/banks/secret-life-shopaholic/ which Investigations press release on the findings of its investigation ------outlines some of the shopping spree in France, South Africa http://www.hsgac.senate.gov/subcommittees/investigations/ 107 See the FCA press release for its review of small banks, and the U.S. and for further full details of that spending spree in media/hsbc-exposed-us-finacial-system-to-money-laundering- November 2014 http://www.fca.org.uk/news/fca-finds-small- the U.S. see US Department of Justice release, “Department of drug-terrorist-financing-risks firms-need-to-manage-financial-crime-risks-more-effectively. Justice seeks to recover more than $70.8 Million in proceeds of ------corruption from government minister of Equatorial Guinea,” 25 87 See the US Department of Justice’s Deferred Prosecution 108 See the EU Council statement 12 January 2015, p67,point 3a October 2011, http://www.justice.gov/opa/pr/2011/October/11- Agreement (DPA) Attachment A, document notes 31 http://bit.ly/1F88VGU crm-1405.html and 37 http://www.justice.gov/opa/documents/hsbc/dpa------attachment-a.pdf 109 For example see the quotes from former Assistant Attorney 64 See the DoJ press release on the settlement http://www. ------General Nathan Hochman about the acquittal on aiding tax justice.gov/opa/pr/second-vice-president-equatorial-guinea- 88 Ibid notes 16 and 17. evasion charges of a senior executive at the Swiss Bank UBS, agrees-relinquish-more-30-million-assets-purchased ------in this Bloomberg article http://www.bloomberg.com/news/ ------89 See Rolling Stone’s “GangsterBankers” February 2013, http:// articles/2014-11-03/ex-ubs-executive-weil-acquitted-of-u-s- 65 From a presentation at an anti-money laundering conference rol.st/1kgrnUp tax-conspiracy in 2008. ------90 See the U.S. Senate Permanent Subcommittee on 110 See the World Bank Stolen Assets Recovery (StAR) 2010 66 The FCA’s press release for its report “How small banks Investigations report, p10 “findings” https://www.hsgac.senate. report “Politically Exposed Persons”, p xv http://bit.ly/1OiO4z7 manage money laundering and sanctions risk” November 2014 gov/subcommittees/investigations/media/hsbc-exposed-us------http://www.fca.org.uk/news/fca-finds-small-firms-need-to- finacial-system-to-money-laundering-drug-terrorist-financing- 111 See the summary of the separate, and independent studies manage-financial-crime-risks-more-effectively risks of analyses carried out for the implementation of public registries ------in the UK and the EU in the Global Witness report Poverty, 67 See The Independent “Coutts bank fined 8 million by FSA” 91 The US Department of Justice state that HSBC was laundering Corruption and Anonymous Companies pp6-7 https://www. March 2012 http://www.independent.co.uk/news/business/ drug money from 2006 to 2010 – see its document outlining the globalwitness.org/en-gb/campaigns/corruption-and-money- news/coutts-bank-fined-8m-by-fsa-7585721.html charges against HSBC: Deferred Prosecution Agreement (DPA) laundering/anonymous-company-owners/poverty-corruption------Attachment A, document note 9: http://www.justice.gov/opa/ and-anonymous-companies/ 68 See endnote 5. documents/hsbc/dpa-attachment-a.pdf For Mexican Government ------figures on killings by drug gangs during that 112 See the Transparency International blog “Banks need integrity 69 See the BBC article “Six banks fined £2.6bn by regulators over period see Congressional Research Service paper by June S. Beittel not just stress tests” October 2014 http://www.transparency.org/ forex scandal” http://www.bbc.co.uk/news/business-30016007 “Mexico’s Drug Trafficking Organizations: Source and Scope of news/feature/banks_need_integrity_not_just_stress_tests ------the Violence” April 2013, p22. https://www.fas.org/sgp/crs/row/ ------70 See the FCA’s 2013/4 Annual AML review, p10. http://www.fca. R41576.pdf org.uk/your-fca/documents/corporate/anti-money-laundering------annual-report-13-14 92 Ibid pp 1and 25, and also CBS News “Mexican drug war toll: ------47,500 killed in 5 years” 11 January 2012 http://www.cbsnews. 71 See The FCA’s press release announcing the sanction against com/8301-202_162-57357503/mexican-drug-war-toll-47500- the bank, March 2015 http://www.fca.org.uk/news/the-financial- killed-in-5-years/ conduct-authority-imposes-2-1m-fine-and-places-restriction------on-bank-of-beirut 93 See the Wall Street Journal article from January 2015, http:// ------www.wsj.com/articles/hsbc-struggles-in-battle-against-money- 72 See Swissinfo.com “Banks probed over dictator assets” laundering-1421100133 November 2011, http://www.swissinfo.ch/eng/banks-probed------over-dictator-asset-rules-/31537562 94 See FATF recommendations nos 10-16, pp13-17 http://www. ------fatf-gafi.org/media/fatf/documents/recommendations/pdfs/ 73 See Reuters “Swiss Watchdog chides 3 banks over Tunisia FATF_Recommendations.pdf accounts –TV” http://www.reuters.com/article/2013/10/21/ ------swiss-banks-idUSL5N0IB14W20131021 95 See the Global Witness report “Poverty, Corruption and ------Anonymous companies” https://www.globalwitness.org/en-gb/ 74 For example see Senator Grassley’s letter to the Department campaigns/corruption-and-money-laundering/anonymous- of Justice endnote 84 and rolling stone article in endnote 89. company-owners/poverty-corruption-and-anonymous------companies/ 75 Two fines were handed out to staff at Bank of Beirut in ------March 2015, see http://uk.reuters.com/article/2015/03/05/uk- 96 This obstacle to establishing beneficial ownership was britain-fine-beirut-idUKKBN0M112R20150305 ; highlighted, for example, in a European Commission study ...... 27 ATM

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