Big Banks Have Been Behaving Badly

Big Banks Have Been Behaving Badly

over 3 years ago3 mins

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You won’t be surprised to hear more big banks have been caught with their hands in the register. Now, put the gun down and get me a pack of Tropical Fruit Bubblicious while we put it into context for you. And some Skittles.

🕰 Recap

  • Back in 2018, a $230 billion money-laundering scandal led to the resignation of Danske Bank’s CEO
  • And later that year, Deutsche Bank’s offices were raided by anti-money laundering police
  • In June, payments processor Wirecard’s CEO was arrested after revealing that a misplaced $2 billion didn’t actually exist
  • And last week, leaked documents showed a dozen big banks have been helping criminals launder money for years

✍️ Connecting The Dots

The United Nations estimates that, in any given year, an amount of money roughly equivalent to 5% of the entire world’s economic output is “laundered” – or funneled by criminals through banks and legitimate businesses to obscure its illegal origins. The UN also thinks finding, freezing, and recovering ill-gotten gains has become harder to do over the years – which suggests money laundering will remain a fact of life for a while yet.

One of the main concerns of financial regulators around the world – and the reason several companies have been hit with large fines – is that not enough is being done to prevent money laundering, fraud, or other criminal behavior. It wasn’t that long ago, after all, that Swiss regulators rapped Credit Suisse on the knuckles for its loose anti-money laundering and corruption controls, as well as for promoting – rather than sanctioning – an employee who’d committed fraud.

Of course, the world’s biggest banks are traded on the stock market, which means they make public declarations about how much they’ll earn and have investors who’ll punish them if they fall short. If the weight of those promises then trickles down to their employees, it can pressure them to hit targets or risk losing their jobs – and push them into doing things they shouldn’t. It’s also worth noting that the risk of billions of dollars in fines or sanctions might not actually be a strong enough disincentive for wrongdoing. After all, a bank would only face that outcome if it was caught out, investigated, and found guilty. So in the long run, it might be cheaper and more profitable for a bank to risk settling investigations using some of its ill-gotten gains than not to break the rules at all.

🥡 Takeaways

Ongoing high-profile money laundering cases have led several people to argue the rules and processes against the crime aren’t fit for purpose. Among them, cryptocurrency enthusiasts have suggested that the decentralized nature of the blockchain and record-keeping of the distributed ledger could help answer questions banks haven’t been able to answer about where certain cash has come from. On the other hand, the anonymity cryptocurrency can provide may be a stumbling block for regulators who might instead prefer to reform the existing laws.

Part of the reason banks’ shares fell precipitously in response to last week’s scandal was the threat of fines. With the potential amount banks will have to pay still up in the air, so is their potential cash flow, making it difficult for investors to figure out what their shares should be worth. Then again, you might argue that investors should’ve allowed for the risk of fines in their initial calculations – but no serious investor would buy into a company they knew was breaking the law, would they ?

🎯 Also On Our Radar

Data out last week showed German business confidence increased for the fifth month in a row in September, thanks to the more positive view survey respondents took of both the current situation and the economic outlook. While that tallies with rising activity in the eurozone, it might not tally with economic growth – as Goldman Sachs was quick to flag.

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