The enforcer of a law must be bound by it as much as his quarry and two different organisations that commit the same offence must pay the same penalty. Equally, the payer of such a penalty must have rights of representation, of appeal and of redress. If it transpires that he has been investigated wrongly, he should be left in the same position that he would have occupied had no investigation taken place.

This is unfortunately not the case when the authorities of a country suspect a financier of flouting anti-money-laundering and anti-terrorist-finance (AML/ATF) rules.   

In February 2018 Rabobank, a Californian unit of the Dutch co-operative bank, was reported to have agreed to pay more than US$368 million for processing funds that were probably tied to drug trafficking and other illicit activity and it pled guilty in court to conspiring to obstruct regulatory oversight. It continued in business, however.

In May 2015 BNP Paribas was sentenced to five years’ probation by a US judge. The bank agreed to pay $8.9 billion to settle claims that it broke US sanctions against Sudan, Cuba and Iran. It continued in business and in June 2017 it was reported as having been fined €10 million (US$11.66 million) by the French AML regulator, the ACPR, for inadequate anti-money laundering controls.

In 2012 HSBC paid $1.9 billion to the US authorities to settle allegations that it allowed terrorists to move money around the financial system, also signing a deferred prosecution agreement by which it allowed the Department of Justice to delegate an official to monitor its progress at a reported cost of $20 million per annum. Bizarrely, HSBC later hired Jennifer Shasky Calvery from the Department of Justice as its head of compliance in London with the job of running its side of the monitoring process. In late 2017 the UK’s Financial Conduct Authority commissioned a so-called "section 166 report" about HSBC after the Department of Justice asked about progress.

These are examples of the penalties imposed upon major banks in the Western world, two of them reckoned by the Financial Stability Board to be "global systemically important banks." All these banks have been allowed to continue in business.

A raw deal for the small fry

By contrast, the authorities have been very quick to stop small and 'non-systemic' banks from doing business.

On 21 March this year, Malta’s regulators imposed a freeze on the business of Pilatus Bank after its chairman was arrested on charges of breaking US sanctions.

The Latvian authorities closed ABLV down immediately after FinCEN - the financial crime arm of the US Treasury Department - issued a finding and notice of proposed rulemaking, pursuant to s311 USA PATRIOT Act, that aimed to stop US banks from running correspondent accounts for ABLV and from handling its payments on a pass-through basis. In doing so it proposed to take the so-called "fifth special measure" available to it under s311, codified at 31 U.S.C. 5318A(b)(5), which allows it to prohibit or impose conditions on the opening or maintaining of correspondent or payable-through accounts for the identified jurisdiction by US financial institutions.

The Estonian authorities closed Versobank down on 26 March for shortcomings in its AML regime that were allegedly linked to the Russian elite and intelligence services.

The Estonian Financial Supervision Authority investigated the Estonian branch of Danske Bank - the massive Danish and Nordic institution - in relation to the same events that resulted in the closure of the puny Versobank, but it nevertheless remains open.

The fifth special measure

This has been the pattern when national authorities deal with smaller banks. The original test case for this approach remains that of FBME, the small and foreign-owned bank branch in Cyprus which the Central Bank of Cyprus 'resolved' in 2014. FinCEN had issued one of its s311 notices against FBME and had imposed the same restrictions as it had on ABLV, taking the same "fifth special measure." The Central Bank of Cyprus used the s311 notice as its pretext to stop FBME doing business and take it over. In the four years since this occurred, however, the central bank has failed to corroborate the validity of any of the cases of alleged money laundering that gave rise to FinCen’s notice.

No court cases were involved in these examples. Governments took swift action and closed the banks, cutting off the chance of adequate redress for their owners. The firms ceased to be able to do business and their reputations were destroyed. In these cases, the rights of the subject to proper representation during the due process of law, to a process that the public could follow, and to appeals had been bypassed.

Then we have the report on 13 April that the US authorities had been thinking of taking action against the China Construction Bank and the Agricultural Bank of China for allegedly breaking international sanctions against North Korea. In other words, they had evidence to hand that these banks were routing payments to and from North Korea, although not necessarily in US dollars.

Too big to fail, too big to jail

In view of how swiftly the US authorities acted against FBME, ABLV and others, one might have expected FinCEN to issue a s311 notice to impose the dreaded "fifth special measure" on those financial institutions. The US authorities, however, decided not to be consistent in the way they upheld the law. It seems that they were quick to shelve the idea of taking any action, primarily because they were worried that they might send shock waves through the global financial system if they were to punish banks of that size. Both the China Construction Bank and the Agricultural Bank of China are on the Financial Stability Board's list of 30 global systemically important banks. The FSB, in consultation with the Basel Committee of Banking Supervision and national authorities, updates the list every year.

The see-through blindfold

So what we have here in the AML/ATF arena is not an example of the law acting as it should – with Blind Justice – but of laws that are applied or not applied, and of penalties that vary wildly in their severity and timing, in accordance with the type of offender and not the offence. Prosecutors and regulators make up their own minds – frequently behind closed doors - about which banks to punish and how severely to punish them. They make extensive use of extra-judicial processes (such as those notices of FinCen) that do not make the evidence public. These processes ensure that the accused can only see the evidence third-hand, by applying for a judge to review it in camera: neither the accused nor his/its legal representative can be present.

Since the Financial Action Task Force, the world's AML standard-setter, itself acts as the ultimate court of arbitration by issuing (without brooking any criticism) its recommendations and "special recommendations" that lawmakers convert into laws and supervisory regimes, the entire edifice has drifted beyond democratic control. This loose worldwide regime does claim to have been successful in reducing money laundering and blocking terrorist financing, but there is no factual evidence for this.

Instead, we have evidence that the crassest breaches by the largest banks can go more or less unpunished, and that other large banks are fined, supervised, fined again and allowed to continue in their wrongdoing, while the roofs of the smaller banks fall in. That does not sound like an ecosystem in which money laundering and the financing of terrorism have been successfully eliminated, or one in which justice is blind and holding its own against expediency and commercial prejudices.

* Robert Lyddon can be reached on +44 (0) 7939 132341