The Analysis Comment


Are large fines for banks effective?


What is the the effectiveness of huge financial penalties for wrongdoing, and the likelihood of criminal prosecutions in the future?


Syedur Rahman Senior solicitor, Rahman Ravelli


Standard Chartered has hit the headlines for the size of the fines imposed on it on both sides of the Atlantic. But behind all the big numbers and the


column inches it is hard not to wonder if such a costly slap on the wrists is now being viewed by the big banks as nothing more than the cost of doing big business. Standard Chartered has been ordered


to pay a total of $1.1bn by US and UK authorities to settle allegations of poor money laundering controls and sanctions breaching. It is paying $947m to American agencies


over allegations that it violated sanctions against six countries and has been fined £102m by the UK’s Financial Conduct Authority (FCA) for anti-money-laundering breaches; including shortcomings in its counter-terrorism finance controls in the Middle East. These fines had been expected. Standard


Chartered said two months before the fines were imposed that it had put $900m aside to cover them. But this is not the first time that Standard Chartered has had to pay out for its wrongdoing.


If they are prepared to keep paying the


fines or giving assurances about keeping to the terms of a DPA while reaping the benefits of breaking the law, it is hard to see the cycle of behaviour changing.


Criminal prosecution Let us be clear: any failure by Standard Chartered to abide by the terms of its DPA could see it facing criminal prosecution. And any bank’s weak approach to money laundering is now increasingly likely to be pounced on by the authorities. The Standard Chartered investigation


But it is fair to point out that it is not the only bank to be hit by huge fines for wrongdoing and then be found to be repeating its illegal behaviour


Previously Seven years ago, it paid a $667m fine in the US. Like its latest US penalty, it related to alleged sanctions breaches. At the time, it also entered into a deferred prosecution agreement (DPA) with the US Department of Justice and the New York county district attorney’s office over Iranian sanctions breaches beyond 2007. That DPA would have expired by now, but it has been extended


until April 2021 in the wake of the latest allegations. Will this be the end of Standard Chartered’s problems and the


start of a new allegation-free era? It is hard to believe so. But it is fair to point out that it is not the only bank to be hit by huge fines for wrongdoing and then be found to be repeating its illegal behaviour. Which is why it is hard to believe that fines are having any real impact on the way that some of the biggest banks function.


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was a co-ordinated multi-jurisdictional effort by the FCA, the US agencies and the United Arab Emirates. And while Standard Chartered’s full cooperation with the FCA saw it receive a 30% discount on its fine, relying on cooperation to gain a lesser punishment cannot be viewed as a safe approach. The authorities around the world that


investigate the activities of banks and other financial institutions are now more coordinated than ever. They have more


legal powers than ever before and are unlikely to be reluctant to use them against those in the financial marketplace that come to be seen as repeat offenders.


No clear evidence There is no clear indication or evidence that the era of big fines may be about to pass or that the authorities are set to view convictions as a more effective deterrent to financial crime than hefty financial penalties. There may also be difficulties when it comes to corporate liability which, in the UK, requires proof that those involved in the wrongdoing are sufficiently senior to be considered the ‘controlling mind and will’ of the company. But if fines continue to be ineffective in curbing the behaviour of


certain banks it can surely only be a matter of time before the authorities rethink their approach to enforcement. CCR


www.CCRMagazine.com June 2019


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