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Fines for Weak AML and KYC Compliance Systems Increasing

HSBC Fined for Failures in AML and KYC Compliance Weaknesses

Fines related to failures in anti-money laundering (AML) and know your customer (KYC) compliance systems are increasing, and they shows no signs of stopping.  As of last week Europe’s largest bank, HSBC based in London, was fined the equivalent of $85 million USD for weak anti-money laundering systems. The bank has struggled for years with their anti-money laundering systems, failing to prevent large money laundering scams, and exposing the bank to unnecessary risks.  These weaknesses were found in key areas that relate to their transaction monitoring systems. Such as identifying unusually large transactions, atypical transactional patterns, and activities related to the financing of terrorism. One such example is that of a construction worker who’s salary tripled within a month. This individual ended up pleading guilty to tax fraud in 2014.  Additionally, HSBC was also found to have inadequate testing for accuracy and completeness in their data monitoring systems.  It was reported that from 2012 to 2017 around 43 million transactions through HSBC were not monitored correctly.


HSBC Bank Struggles for Years With Anti-Money Laundering Systems

This is not the first time HSBC has received hefty fines for failures in AML and KYC compliance. In 2012 the bank was fined $1.9 billion USD (according to the article this amount is an equivalent of five weeks of profit of HSBC) for a money laundering scam totaling $881 million USD from illegal drug sales through the U.S. financial system.  Additionally, HSBC has been tied to aiding in money laundering activities by the cartels, and for moving money for banks in Saudi Arabia that are tied to terrorist groups.  Several senior officials of HSBC were found to be in compliance with these activities, but astoundingly faced no charges over the crimes. Additionally, in 2019  They were fined for $336 million to settle a tax fraud case.


2020 Was a Record Year for AML and KYC Compliance Fines

2020 was a year that saw record fines totaling to $2.2 billion USD for failures in anti-money laundering (AML) and know your customer (KYC) compliance.  These fines were attributed to increasing fraudulent activity spurred by the pandemic, and financial institutions (FI’s) were hit the hardest.  The shifting economic landscape during the pandemic opened up new playgrounds for money laundering crimes, as digital landscapes witnessed more transactions allowing for better concealment of money laundering.  However, regulators stepped up to the plate and increased their scrutiny, especially for FI’s, and the increased scrutiny is here to stay.

Increased Scrutiny From Regulators Here to Stay

Due to the increased activity of regulators, business are ramping up their AML and KYC compliance systems.  In fact, it has been reported that in 2021 almost 80% of North American FI’s have invested more money in compliance technologies to avoid hefty fines that come with failures in AML and KYC compliance, such as witnessed with HSBC. Investing in proper AML and KYC compliance technologies can help save businesses millions of dollars, and also their reputations, which is why the investment is crucial to keeping businesses alive in this increasingly scrutinized landscape.

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