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Financial Crimes Surged Amid COVID-19, Says FATF

Richard Marley
December 18, 2020
2 minutes read
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Financial Action Task Force (FATF) speaks up about the adverse effects of COVID-19 on financial regulations. A recent report published by FATF states that money laundering and terrorism financing has spiked during the COVID-19 pandemic.

COVID-19 pandemic has led the world to face many challenges and economic hardships. It has also created more opportunities for crimes due to depression in the economy. People are using illegal means to generate income and fulfill their basic needs. FATF has highlighted the money laundering and terrorist financing risks due to the COVID-19 in the past and has also laid out policies to take measures against such endeavors.

FATF has now released an update on these policies in its latest report. FATF has done detailed research on 200 member countries including private and public sectors and after their inputs, they have released a report talking in detail about how the criminals have exploited this crisis. The case study also highlights how the risks have evolved and how authorities can deal with them. The crime cases include counterfeiting medical goods, cybercrime, investment fraud, charity fraud, and abuse of economic stimulus measures.

The paper also confirms FATF’s claim that there has been an increase in online purchases due to the lockdown. Physical bank branches are closed down temporarily and are providing services online.

a great read..

COVID-19-related Money Laundering and Terrorist Financing Risks and Policy Responses ( COVID-19-related Money Laundering and Terrorist Financing Risks and Policy Responses ) https://t.co/XuyWLalaAN pic.twitter.com/PruVZFd122

— Dez Blanchfield – 13 days to 2021 (@dez_blanchfield) July 28, 2020

To eliminate the evolving risks, law enforcement authorities and affected industries must take a risk-based approach according to FATF’s standards. This means that they are required to reduce the money laundering and terrorism financing threats without affecting any financial services. The financial services must not be directed towards unregulated service providers.

Authority figures should explicitly discuss the national risks regarding regulatory situations. The report talks about the risks and policies and gives guidance on how different nations and their law enforcement authorities can address the issue.

Disclaimer: No warranty is herein provided that the information contained in this document is accurate, up-to-date, and/or complete. In no circumstance(s), does such information constitute legal or any other advice. Any person who intends to use, rely, pass-on, or re-publish the information contained herein in any way is solely responsible for the same. We suggest to verify the information and/or obtain expert advice independently if required.

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Record-Breaking Fines on Banks for KYC/AML Non-Compliance
Know Your Customer (KYC) and Anti-Money Laundering (AML) compliance have been structured to make financial institutions secure. The rising number of illegal activities in the finance sector is raising concerns for regulatory authorities. This year, the KYC/AML regulations have become more rigid and different countries have also amended their state laws for customer due diligence. Why are all the regulatory authorities imposing more stringent laws in 2021?

In 2020, the majority of banks were fined for not complying with KYC/AML regulations. The law violations increased significantly and record-breaking penalties were imposed on banks across the globe. This led law enforcement agencies to make certain changes to the regulations and customer due diligence protocols. The record-breaking penalties in the finance sector have changed the game for businesses.

Let’s take a deep dive into the largest penalties of 2020 and how can KYC/AML regulations help the finance sector to avoid them in 2021.

How to Comply with KYC/AML Regulations?

Compliance with KYC/AML regulations require robust Anti-Money Laundering (AML) screening and Know Your Customer (KYC) identity verification measures. These measures verify the identity of every customer and ensure that legitimate customers are onboarded. With the help of document verification and biometric authentication, it gets easier to follow the laws.
Recommended: The Future of Customer Onboarding Post-COVID-19 Pandemic

A Summary of 2020 Bank Fines

2020 brought several inconveniences to life and the most distressing challenge was fighting fraudsters. Identity theft and money laundering were the most reported crimes last year. Unfortunately, the inability of financial institutions to verify identities of customers increased money laundering and other illegal activities. Here is a summary of fines imposed in 2020:

Goldman Sachs Tops the List

The US was ranked number 1 with the highest number of bank fines enforced in 2020. 12 cases of AML non-compliance were reported and the sum of all these fines was €9.39 billion. The fine on Goldman Sachs alone was €3.30 billion. The settlement was made by the bank with Malaysia against the Wall Street Bank for its role in assisting to raise millions for a sovereign wealth fund.

Commerzbank Fined £37.8 Million by FCA

The Financial Conduct Authority (FCA) imposed a £37.8 Million fine on the Commerzbank, London. The fine was a result of the bank’s violation of AML controls. According to reports of FCA, the violations will result in huge risks and stability issues of the UK’s financial system. The audit from FCA shared the following reasons on the basis of which the bank was penalised:

Periodic due diligence failures

Insufficient money laundering control procedures

Inadequate risk management systems

Westpac Paid $1.3 Billion for AML Breaches

Last year, Westpac bank in Australia was number 5 on the list of banks with the highest penalties. The court penalised Westpac with a fine of $1.3 billion. AML laws were breached at different intervals. Westpac not only violated AML/CFT laws but also failed to employ transaction monitoring and did not submit IFTI reports to AUSTRAC. Furthermore, the bank did not perform enhanced due diligence for high-risk transactions as suggested by FATF.

SEB Bank Fined $107 Million for Poor AML Measures

Next in the list of KYC/AML non-compliance is Lloyds Bank that was fined $107 million by the City watchdog for unfair treatment of mortgage customers. According to the executive director of enforcement and market oversight of Financial Conduct Authority (FCA),

“Banks are required to treat customers fairly, even when those customers are in financial difficulties or are having trouble meeting their obligations. By not sufficiently understanding their customers’ circumstances the banks risked treating unfairly more than a quarter of a million customers in mortgage arrears.”

Reasons Behind Hefty Penalties on Banks

The major reason behind all these hefty penalties is the banks’ inability to follow the regulations imposed by higher authorities. However, there are several other reasons resulting in increasing fines and growing rigidity of regulations. They include,

Consistent failures to comply with the Anti-Money Laundering laws

Lack of proper customer due diligence

No transaction monitoring measures taken

Overseen cases of compliance monitoring

Did you know that the highest number of cases of AML law violations have been reported in 2020? Here’s an overview of the number of cases reported last year:

82 cases of transaction monitoring

109 cases of poor AML compliance

115 cases of lack of customer due diligence

If banks continue to lack robust verification and AML systems, the numbers will increase this year as well.

Suggested: A Comprehensive Guide to AML Compliance [2020]

What Can You Do to Prevent Fines in 2021?

Other enterprises in the finance sector must comply with the KYC/AML regulations at all costs. Otherwise, heavy penalties will be their fate in 2021 as well. How can banks and other financial enterprises prevent fines this year? Well, here’s what you should do:

Take a look at the amended laws from regulatory authorities

Audit your current identity verification protocols

Ensure robust KYC/AML compliance measures within the company

Never onboard any customer without verification

Always perform enhanced due diligence (EDD) checks for high-risk customers

Ongoing transaction monitoring must be employed to prevent money laundering

Read more: Shufti Pro’s Ongoing AML Solution to Prevent Transaction Laundering

How Can Shufti Pro Help You?

Penalties on financial institutions are increasing every year and 2020 broke records. The major reasons for hefty penalties included poor customer screening and inefficient AML compliance procedures. Furthermore, damaged brand reputation is another setback for companies. In order to protect your organisation from criminal activities and heavy penalties, it is better to employ KYC/AML verification.

Shufti Pro is a one-stop solution for all your needs. With AI-powered identity verification and AML screening, you can verify all the customers during the onboarding process. Moreover, the ongoing AML screening allows you to screen the backgrounds of high-risk customers as per your requirements. With 98.67% accuracy of our solutions, you can get in touch with the right customers.

Talk to our experts and add robust identity verification protocols to protect your company.

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Financial Crimes Surged Amid COVID-19, Says FATF

A Summary of 2020 Bank Fines

Goldman Sachs Tops the List

Commerzbank Fined £37.8 Million by FCA

Westpac Paid $1.3 Billion for AML Breaches

SEB Bank Fined $107 Million for Poor AML Measures

Reasons Behind Hefty Penalties on Banks

What Can You Do to Prevent Fines in 2021?

How Can Shufti Pro Help You?

Let’s prove your

customer’s identity

with Shuftipro.

Let’s prove your customer’s

identity with Shuftipro.

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Financial Crimes Surged Amid COVID-19, Says FATF

How to Comply with KYC/AML Regulations?

A Summary of 2020 Bank Fines

Goldman Sachs Tops the List

Commerzbank Fined £37.8 Million by FCA

Westpac Paid $1.3 Billion for AML Breaches

SEB Bank Fined $107 Million for Poor AML Measures

Reasons Behind Hefty Penalties on Banks

What Can You Do to Prevent Fines in 2021?

How Can Shufti Pro Help You?

Let’s prove your

customer’s identity

with Shuftipro.

Let’s prove your customer’s

identity with Shuftipro.