A recent string of enforcement actions by bank regulators and the U.S. Department of Justice against financial institutions charged with facilitating or failing to prevent large-scale money laundering operations by criminals, drug cartels and even terrorist organizations is boosting the market for products that can help detect and prevent such activities.

Aite, a financial services research and advisory firm, in a new study released this week, says that over the past year, regulatory actions and criminal investigations against financial institutions in the U.S. alone have resulted in fines and settlements exceeding $800 million.

The study warns that with the convergence of increasing regulatory scrutiny, new regulation, and increasing payments volumes and message types, “this number will continue to grow.”

Fines and settlements over this past year have ranged from a $7 million fine this past March levied against Pacific National Bank for “failure to implement an effective anti-money laundering program” and an $8 million fine in February against Zion’s First National Bank for “failure to monitor and report deposit and wire activity to a specific foreign correspondent business,” to a whopping $536 million fine a year earlier against Credit Suisse for “facilitating and concealing wire transfers from blacklisted countries.”

The Aite study notes that while some of the fines are small, they often are lodged against much smaller banks where they can represent a significant penalty given the size of the institutions involved.

The study compares and rates a number of vendors of anti-laundering software -- estimated as a $450-million market this year.

Julie Conroy McNelley, a senior analyst and author of the Aite study, says that “things are continuing to tighten” in the area of federal prosecution of money laundering and she warns that “the regulatory bar is being raised all the time.”

Bank officials and personnel who actually handle client funds, such as tellers and financial advisors, aren’t expected or required to establish whether any of their clients are criminals trying to launder ill-gotten gains, says McNelley. They are, however, expected to report suspicious transactions.

Where people and institutions get in trouble, she says, is if they “let things slip by” through failure to report large transactions.  Under the law, any transactions of $10,000 or more have to be reported.

Another way institutions can get in trouble, she says, is if central managers don’t keep close tabs on local branch offices where insiders can sometimes be drawn into arrangements to help money launderers cover their tracks.

In one case involving ABN Amro (later acquired by the Royal Bank of Scotland) officers at a local branch of the bank actually had produced a manual telling employees how to always delete the identity of Iran and the Sudan from wire transfer documents to hide the source or destination of some laundered funds. Royal Bank of Scotland ended up getting hit in May 2010 with a $500 million fine in that case.

The Aite study suggests that the cost of anti-money laundering software systems can run anywhere from about $40,000 a year for a small community bank or credit union to $1.5 million for a large financial institution.

Given the size of the penalties being levied these days for failure to adequately monitor for money laundering activity, that is probably money well spent.


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