Why banks can’t wash their hands of dirty money
In the past, bribes paid overseas to
foreign officials have been outside the scope of UK law, writes Danny
Sougith Sanhye, anti-bribery expert at BDO. The Bribery Act 2010,
which comes into force on 1 July, changes all that. It means UK
companies – and banks in particular – can no longer afford to
turn a blind eye to bribery, money laundering and corruption in other
countries. It's essential that your clients are aware of the new
regime.
According to World Bank, US$1 trillion of corruption money moves around the world each year. Most of it is undetected, as the low number of corruption convictions shows. A quarter of Africa’s GDP – some US$148 billion – is lost to corruption each year, while a further US$20-40 billion is spent on bribes to public officials in the world’s poorest countries.
Although corruption can take the form of facilitation payments, corporate hospitality, gifts, sponsorships, expenses, political and charitable contributions, the payment of a bribe itself cannot happen without the services of banks – which means banks can be directly implicated in such cases.
Many of those corruption cases revolve around intermediaries who launder the proceeds for politicians and foreign investors. Politically Exposed Persons (PEPs) in corrupt jurisdictions hold tremendous power and directly influence their countries’ anti-money laundering measures. As long as they remain able to abuse the system, dirty money will continue to end up in banks, often through trusts and corporate vehicles set up by agents and administered by unrelated third parties.
The challenge for banks and financial institutions in these circumstances is to spot the transactions which are hiding the proceeds of corruption. Those with branches operating in corrupt jurisdictions need to be extra vigilant. If they fail to report a suspicion of money laundering involving the proceeds of bribery, they risk being prosecuted for aiding and abetting the offence.
That means they need robust systems in place to detect signs of bribery and corruption. Banks are already required by law to conduct enhanced due diligence (EDD) on transactions that might be related to PEPs or high-risk individuals. However, a lack of consensus on the definition of PEP in high risk jurisdictions has created legal loopholes in transnational corruption cases, making it challenging for banks to screen transactions efficiently.
It’s in the interests of a company which discovers it has a bribery issue to report this to the Serious Fraud Office (SFO) – doing so could be seen as a mitigating factor by the courts. Alternatively, they could inform the Serious Organised Crime Agency (SOCA) through a suspicious activity report (SAR). Indeed, banks are required by anti-money laundering laws to identify their customers and the source of funds, and to file a suspicious activity report if they suspect the money is tainted.
Effectively scrutinising transactions for the proceeds of corruption is a major challenge, given the high level of sophistication in money laundering techniques. For banks with branches overseas, the level of corruption in some countries could frustrate the anti-money laundering measures they have in place.
For anti-bribery measures to be effective, it’s vital for banks to review their risk assessment policies and procedures across all their branches. They need the right people, the right processes and the right technology to minimise the risk of handling the proceeds of corruption. Failing to make this commitment substantially increases their operational risks and could expose them to heavy fines and even prison sentences.
BDO have considerable experience in this area, and will be able to provide swift and practical advice to any of your clients who may be exposed under the new Act.
