Fincrime Briefing: SEC fines Barclays for corruption in ‘princelings’ scandal, Swedbank fires top execs amid laundering probe, Tanzania AML enforcement uptick, and more

By Brian Monroe
bmonroe@acfcs.org
October 1, 2019

 

Quote of the Day: “March on. Do not tarry. To go forward is to move toward perfection. March on, and fear not the thorns, or the sharp stones on life’s path.” – Khalil Gibran

In today’s ACFCS Fincrime Briefing, SEC fines London’s Barclays more than $6 million for illicit referral hires, just the latest bank to fall, Swedbank unloads top executives as money laundering scandal, scrutiny intensifies, flurry of Tanzanian AML banking penalties, and more. 

Please enjoy this unlocked story, part of the many benefits of being an ACFCS member. 

Want to talk about industry trends, story ideas or get published? Feel free to reach out to ACFCS Vice President of Content Brian Monroe at the email address above. Now, on to more sweet sweet content! 

Corruption

SEC fines British banking giant Barclays $6 million for hiring relatives of business prospects in further tendril of ‘princelings’ scandal 

The chief watchdog of the U.S. securities sector penalized one of London’s largest banks more than $6 million for broad corruption failings by illicitly trying to boost its investment banking business by hiring the friends and relatives of powerful foreign government officials – bringing the total number of banks to fall for similar actions to nearly a half-dozen. 

The Securities and Exchange Commission in a just-announced penalty order stated Barclays PLC will pay $6.3 million to settle charges that it violated the U.S. Foreign Corrupt Practices Act (FCPA) by hiring the relatives and friends of foreign government officials in a bid improperly influence them in connection with its investment banking business. 

In recent years, some half-dozen of the world’s largest banks – including Credit Suisse, Societe Generale, JPMorgan Chase and others – have paid regulatory and investigative agencies hundreds of millions of dollars for offering coveted internships and similar instruments to get an edge in certain business deals, colloquially dubbed the “princelings” scandal. 

As in other past cases, the graft gaffes occurred in Asia, where some countries still consider bribery and influence peddling as part and parcel of standard business practices. 

Between April 2009 and August 2013, Barclays hired approximately 117 job candidates referred by or connected to foreign government officials or non-government clients. 

Most of these candidates were hired through an unofficial internship program called the “work experience program,” but some were hired into Barclays’ formal internship program, its graduate program or in permanent positions, according to the SEC order. 

In the order, the SEC stated that Barclay’s Asia Pacific Region (APAC) provided “valuable employment to the relatives, friends, and associates of government officials to obtain or retain business or other benefits,” a move in direct contravention of stated corporate counter-corruption compliance policies and done with the knowledge of a regional compliance officer. 

Many of these “relationship Hires” were made through an ad hoc and very much unofficial intern program, while others were surreptitiously hired through Barclays’ formal intern program, its graduate program, or as candidates for permanent positions, though in many cases they skirted certain reviews, had falsified experience or didn’t possess the requisite skillset for the positions.  

The SEC listed a bevy of Barclays failures in this area, including crafting and maintaining a system of internal accounting controls around its hiring practices to “provide reasonable assurances that its employees were not bribing foreign officials in violation of company policy and the FCPA.” 

‘Unofficial’ internship program 

The bribing at Barclays started roughly a decade ago, with a seemingly innocuous “internship” program. 

In April 2009, a senior executive in APAC approved an “unofficial intern” program for Barclays Korea that was separate from Barclays’ formal internship program. 

The stated purpose of the program was to provide work experience opportunities for Korean college students and “on occasion to provide positions for ‘relationship’ requests for qualified students.” 

That didn’t happen in practice. 

Overall, roughly half of the candidates in this program between 2009-2013 had a connection to a Barclays client. 

A senior banker in Korea responsible for the program was even more direct in the graft-gilt aim of the program, stating that, in his view, the “key factor behind relationship hiring decisions was what business the client could deliver to the bank.” 

The senior banker also stated that “relationship hiring decisions were made based on whether the client was important, whether the hire would enhance the business relationship, and whether hiring the candidate would ‘open doors’ or otherwise help the bank win business.” 

This practice began with Korea and later extended to other countries within APAC.

As well, in an attempt to cover their tracks, Barclays’ employees in the Asia Pacific Region “falsified corporate records to conceal the true source of the candidates and the reasons for hiring them,” according to the SEC. 

As part of the settlement, Barclay’s agreed to pay just more than $6.3 million, the figure lowered considerably to the bank’s remedial acts and cooperation with the investigation.

Lack of enterprisewide compliance program 

All this occurred even though Barclays created and touted anti-bribery and corruption policies that included prohibitions on providing employment in exchange for business, between 2009 and 2013, it lapsed on the oversight and enforcement around the initiated. 

The bank “failed to effectively train APAC employees or monitor their compliance with those policies,” according to the SEC. “APAC bankers and compliance personnel lacked familiarity with and understanding of Barclays’ anti-bribery and corruption policies, particularly as those policies related to hiring.” 

The order highlights many areas of confusion about what constituted corruption when employment influence and business opportunities collided. 

For example, an APAC senior executive “claimed he did not know that offers of employment were items of value or that such offers could not be used to obtain business,” according to the SEC. 

As well, one banker who worked at Barclays business units in both Korea and Hong Kong from June 2005 to March 2017 said “he was not aware of the FCPA until 2013,” according to the enforcement order. 

Other Barclays bankers in the region mirrored similar sentiments, saying they were not aware that Barclays included internships and offers of employment within the definition of “anything of value.” 

When shown Barclays policy on anti-bribery and corruption, one banker said he had “never seen it before,” the SEC stated. 

Even compliance professionals in certain parts of Asia, the sentinels of understanding, identifying and countering corruption, where clueless. 

A senior regional compliance executive said that he “never read the 2009 anti-bribery and corruption policy,” which required pre-approval by compliance before Barclays could offer internships to public officials or their close family members, and he also stated that it was “not until 2012 that he understood that an internship was considered an item of value for compliance purposes,” (via the SEC).

Monroe’s Musings: These SEC actions are excellent blueprints to see how corruption can enter into a bank, even one with an extensive anti-bribery compliance program. 

Banks should consider weaving their sanctions, negative news and politically-exposed person (PEP) screening systems with their human resource and hiring systems to better uncover illicitly connected, and corrupted, hires. 

Individual liability

Beleaguered Swedbank fires top executives in Estonia amid laundering probe

In a continuing purge of Nordic and Baltic banks battling broad financial crime probes, three top executives at the Estonian branch of Swedbank AB, including a one-time candidate for central bank governor, have been fired amid an ongoing investigation into a vast money-laundering scandal involving hundreds of billions of dollars from Russia and other risky regions. 

The news came not long after police in Estonia confirmed that the former chief executive officer of the local branch of Danske Bank A/S had committed suicide, as criminal probes into the Danish lender’s involvement in a $220 billion dirty-money affair continue. 

Swedbank is being investigated for its possible involvement in the Danske saga.

Estonia has emerged as ground zero for one of Europe’s worst laundering cases ever, after the local branches of both Danske and Swedbank were allegedly used to funnel billions of dollars in suspicious funds from the former Soviet Union into the West.

Shares of Swedbank, Sweden’s oldest bank, have plunged in recent months, erasing all the gains seen since Chief Executive Officer Birgitte Bonnesen took the helm of the bank in April 2016, after money-laundering allegations wiped out a fifth of its market value. 

Swedbank’s board fired Bonnesen in March related to her handling of the scandal, at first trying to downplay and dismiss it, and then infuriating board members as the bank’s value plummeted. 

Stockholm-based Swedbank, which dominates the financial industry in the Baltic region, said late on Monday that its former CEO Robert Kitt, who had been suspended since June, has now lost his job. 

He had been seen at one point as a candidate to replace Ardo Hansson as the governor of Estonia’s central bank, a position that would also guarantee a seat on the governing council of the European Central Bank.

Vaiko Tammevali, who had been chief financial officer at Swedbank in Estonia before being suspended in June, also lost his job, as did Kaie Metsla, the current head of the bank’s private customer division, according to a statement late on Monday.

Swedbank said it appointed Olavi Lepp as its permanent CEO to run the Estonian unit. Anna Kouts will take over as CFO, it said.

The decision to remove the executives was based on “information concerning historical shortcomings connected to anti-money laundering work,” according to Bjoern Elfstrand, council chair of Swedbank Estonia.

According to the bank, ongoing investigations into money laundering have so far not shown that there was any criminal activity, (via Bloomberg).

Monroe’s Musings: The dominoes in the Danske Bank scandal continue to fall. Swedbank, which has been accused of moving a yet unknown figure of suspected funds tied to Danske Bank is clearly looking for individuals to pin blame to appease regulators and hopefully assuage investigators. 

While clearly not fun, getting fired from Swedbank may be the least of these individuals’ problems. Regulators and investigators in Sweden and Estonia have also been embarrassed by the Danske bank scandal, so the specter of individual enforcement actions against top officials is not out of the question. 

Enforcement

Tanzania fines five banks for lax AML controls as country tries to bolster compliance, counter crime, boost economic footing of flagging institutions 

Tanzania’s central bank in a just-announced missive stated it had fined five commercial banks over $800,000 for breaching anti-money laundering rules, the latest in a series of moves aimed at tightening financial crime regulation in the financial services sector while at the same time warding off insolvencies.

The Bank of Tanzania (BoT) said in a statement the fines were imposed “for failure to conduct proper customer due diligence and file suspicious transaction reports to the (state-run) Financial Intelligence Unit (FIU).”

I&M Bank was slapped with the biggest fine at 655 million Tanzanian shillings ($284,782.61), followed by Equity Bank (580 million shillings), UBL Bank (325 million shillings), Habib African Bank (175 million shillings) and African Banking Corporation (145 million shillings).

The regulator gave three months to the sanctioned banks to implement various anti-money laundering measures, which include taking disciplinary action against all staff members “who were involved in opening implicated deposit accounts contrary to KYC (know your customer) requirements”.

Tanzania has tightened regulatory oversight over commercial banks and other financial institutions over the past few years as the country overall attempts to retool its image as a region rife with corruption, instability and fraud within its financial centers. 

The central bank last month gave all banks and financial institutions in Tanzania 90 days to establish primary data centres in the East African nation, saying it will impose hefty fines on lenders that fail to comply.

The country’s financial services sector, which is dominated by lenders like CRDB Bank and NMB Bank, has been hit by a spike in bad loans, which have stifled the growth of credit to the private sector.

In December, the International Monetary Fund said nearly half of Tanzania’s 45 banks were vulnerable to adverse shocks and risked insolvency in the event of a global financial crisis.

Tanzania’s central bank has revoked the licenses of at least nine banks since 2017, saying the move was aimed at safeguarding the stability of the sector.

The closure of the banks came after President John Magufuli ordered the central bank to take action against failing financial institutions, (via Reuters). To read the full central bank release, click here

Monroe’s Musings: Tanzania’s AML and counter-financial crime regime is still in its infancy, attempting to create stronger laws, build capacity to enforce them and now, finally, start levying more and larger penalties for banks flouting them. 

The country’s chief AML law came into force in 2006, around the same time the jurisdiction created a financial intelligence unit (FIU). But various watchdog groups still have concerns Tanzania is still very corrupt and some regions are actively resisting enforcement of AML rules and obligations. 

Even so, I think it’s a very important move for the country’s financial authorities to view financial health in the same breath as AML compliance vigor, a critical realization that if a bank can identify and counter fraud in and outside of its walls, the operation can thrive, better serving customers without a fraudster at the helm or launderers at the gates. 

Human Trafficking Scholarship Winner Profile

Scholarship Spotlight: Three ‘Ps’ propel Festus Aisagbonhi in fight against human trafficking – Prevention, protection, prosecution

Festus Aisagbonhi knows that one of the greatest allies for criminals is when people – whether they are compliance professionals, investigators and even potential victims – don’t even understand the crime, or know the underlying human and financial red flags.

That’s why as Head of Conduct and Compliance at Access Bank Rwanda Plc, he uses his passion and position to understand all there is to know about human trafficking and share those best practices within his bank and with nearby allies to form a regional counter-crime compliance bulwark in the Central and East African country, one of the smallest in Africa. 

With nearly 20 years of banking experience, and recent years in top anti-money laundering (AML) compliance positions, Aisagbonhi realizes criminals will look to launder their ill-gotten funds in regions with weak AML laws or little understanding of trafficking red flags. 

He is making sure his bank isn’t one of them. 

“In many of these countries, laws criminalizing trafficking are relatively new and investigators simply lack the expertise and experience to effectively investigate this class of crime,” he told ACFCS. “In many countries trafficking is still a new crime.”

It was for Aisagbonhi’s drive, dedication and passion to share that ACFCS chose him as one of the recipients of the association’s inaugural Human Trafficking Scholarship Program. 

The selection process centered on individuals in roles combating human trafficking, an effort to share broad thought leadership on the issue as part of the association’s “Quarterly Focus” on human trafficking from April through June of this year. 

The scholarship offers complimentary registration for the Certified Financial Crime Specialist (CFCS) certification, the full suite of prep materials, and a year of membership in ACFCS.

After receiving more than 130 applications from professionals across 20 countries, ACFCS selected 15 recipients of its scholarship program. To view an ACFCS human trafficking resource page, click here

Those chosen for these scholarships submitted applications with compelling professional and often personal experience related to human trafficking – from running investigations and creating transaction monitoring rules, to advocating for legislation and working directly with survivors.

ACFCS in the most recent quarter had a focus on cryptocurrencies. 

To read more about the crypto initiative and find a list of useful resources, click here

To read about the recipients of the inaugural ACFCS Crypto Scholarship, click here

To read the full Scholarship Spotlight for Festus Aisagbonhi click here