Fenergo, the compliance software vendor, has today released its mid-year figures which show that by the end of July penalties totalled US$5.6 billion for non-compliance with sanctions and anti-money-laundering and/or know-your-customer regulations.

AML/KYC fines levied by regulators in the Asia-Pacific region saw a dramatic increase from $3½ million to almost $4 billion. In June, regulators in Malaysia imposed two of the highest penalties in 2020 thus far. The regulator reached a settlement with Goldman Sachs that included a $2½ billion penalty and the guaranteed return of $1.4 billion in assets. The bank was fined for its role in the theft of billions of dollars from 1Malaysia Development Berhad (1MDB), the plundered sovereign wealth fund. Late last month a Malaysian court convicted former Prime Minister Najib Razak, 67, on seven counts including money laundering and breach of trust and sentenced him to 12 years' imprisonment. He transmitted about US$10 million (42 million ringgit) from an 1MDB affiliate called SRC International into his own bank accounts. He faces at least 35 more charges in a battery of other trials to come. His alleged cohort in crime, Jho Low, is still at large.

In the meantime, the repercussions of high-profile scandals and compliance failures have hit American, Israeli, Nordic and German banks the hardest in the Western part of the world.

Rachel Woolley of Fenergo told Compliance Matters: “Although we are seeing a 30% reduction in the value of fines issued to date compared with the same period last year, it is likely that the total enforcement actions issued in 2020 will be on a par with, if not higher than, last year's total of almost $8.4 billion. We can also expect to see additional penalties issued in response to the 1MDB scandal because the US Department of Justice (DoJ) investigation remains open.

"Although regulatory and supervisory activity may have been affected by COVID-19, regulators around the world have been keen to remind everyone of the importance of vigilance and the need to report suspicious activity. As financial institutions continue to face operational challenges in the months ahead, they may struggle to stay on top of other fraudulent activity brought on by COVID-related initiatives, such as the US Paycheck Protection Programme (PPP) loan programme, which may result in enforcement actions later in the year and into next year.”

Three Swedish banks were fined $536 million collectively for lacking sufficient AML governance and controls in the Baltic states. These were Swedbank in March ($386 million), SEB Bank in July ($114.74 million, all to do with HNW non-resident account holders in Latvia, Lithuania and Estonia) and another bank.

In May US authorities including the DoJ, the Federal Reserve and the New York State Department of Financial Services (NYDFS) levied fines of more than $900 million against Bank Hapoalim, Israel's largest bank, for tax evasion and money laundering after discovering that it had concealed more than $7.6 billion in Swiss and Israeli bank accounts. The DoJ also fined the Israeli bank for its part in a money laundering conspiracy surrounding the Fédération Internationale de Football Association (FIFA). In addition, the NYDFS levied a fine of $150 million on Deutsche Bank for its links to Jeffrey Epstein, the late financier.

[Editor's note: SEB Bank also had a recent run-in with the Financial and Capital Market Commission of Latvia in December, being fined €1.79 million ($2 million) for bad AML controls and breaking sanctions.]

Regulators operating in the so-called Asia-Pacific zone, including China, Hong Kong, Singapore, Malaysia, Taiwan, India and Pakistan, levied fines of almost $4 billion. Countries where fines have increased substantially include Pakistan (an 845% rise on 2019 mid-year), Hong Kong (+223%) and Taiwan (+116%) and are a result of governments' attempts to respond to recent criticism that the Financial Action Task Force (FATF) expressed in its mutual evaluation reports on those jurisdictions' AML regimes. The FATF is watching Pakistan more closely than ever.

Marc Murphy, the CEO of Fenergo, also wrote to Compliance Matters: “The current pandemic has created a raft of new challenges for financial institutions on a digitalisation level and yet our fines analysis is proof that the ball can’t be dropped when it comes to compliance. Regulators and government agencies globally are actively encouraging financial institutions to use technology that automates and streamlines KYC and AML compliance processes while improving customer experience. A solid digital-first strategy will reduce the risk of being fined.”