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Bank Stocks Down as Probe Shows Large Scale Money Laundering

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Financial stocks, specially banks, were hit hard on Monday after a report revealed that some of the major global banks allegedly kept “moving staggering sums of illicit cash for shadowy characters and criminal networks” despite warnings from the U.S. officials.

The investigation by BuzzFeed and the International Consortium of Investigative Journalists disclosed that banks had flagged more than $2 trillion of transactions (in aggregate) for possible money laundering and/or other criminal activity during 1999-2017. The probe was based on confidential suspicious activity reports (SARs) filed by banks with the U.S. Department of Treasury's Financial Crimes Enforcement Network (FinCEN).

Of the banks named in the probe, Deutsche Bank (DB - Free Report) seems to have facilitated transfer of around $1.3 trillion of suspicious money. It was followed by JPMorgan (JPM - Free Report) , Standard Chartered, BNY Mellon (BK - Free Report) , Barclays (BCS - Free Report) , Societe Generale (SCGLY - Free Report) and HSBC Holdings (HSBC - Free Report) , among others.

Shares of these banks fell in the range of 3-8.3% on Monday. This was mainly due to the investigation revelations along with huge sell-off across the global equity markets amid rising cases of coronavirus infections. Also, SPDR S&P Bank ETF (KBE - Free Report) tanked 4.5% and KBW Nasdaq Bank Index was down 3.9%.

Statements From Bank Spokespersons

Many global banks have been already fined by the U.S. regulators for alleged money laundering issues over the past several years. Further, these banks seem to have taken steps to combat such financial crimes. The statements issued by various banks on latest development give similar indications.

HSBC, in 2012, had reached a settlement with the U.S. law enforcement authorities in the money laundering case and agreed to pay a penalty of $1.9 billion for its misdeeds and take proper measures to avoid recurrence of such cases.

Now commenting of the latest development, HSBC spokesperson, in a statement to Reuters, said, “At the end of 2017, the Justice Department, having received all of the Monitor’s reports, determined that HSBC met all of its obligations under the DPA. HSBC is a much safer institution than it was in 2012.”

Additionally, Deutsche Bank, in a statement posted on its website, noted that these documents “have already been investigated and led to regulatory resolutions in which the bank’s cooperation and remediation was publicly recognized.”

JPMorgan spokesperson told CNBC, “We have played a leadership role in anti-money laundering reform that will modernize how the government and law enforcement combat money laundering, terrorism financing and other financial crimes.”

StanChart, in a statement, noted “We take our responsibility to fight financial crime extremely seriously and have invested substantially in our compliance programs.”

Will Banks Face Any Financial Implications?

Banks are required by the U.S. federal laws to file SARs in case of detection of money laundering, insider trading, sanction violations or other types of fraud. The filing of SARs itself doesn’t mean that there is any wrong doing, it just alerts authorities of probable criminal activity.

So, why is there a sudden buzz about the money laundering issue following the latest disclosures? Actually, the investigations revealed that despite filing of SARs, no proper action has been taken to stop these activities, both by the banks and regulators.

Thus, this goes on to show that banks, despite many claiming to have increased the compliance capabilities, are still facing these problems. While the new probe (based on past behavior) is unlikely to result in further penalties and sanctions for banks, this surely has dented their reputation to some extent.

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