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Private Banks Really Should Know Where Their Customers Live

Elisa Martinuzzi

(Bloomberg Opinion) -- Ever wonder why some global banks are still failing in the fight against money laundering? An account of Standard Chartered Plc’s latest shortcomings is a stark reminder of how much needs to improve in the industry.

A review by Dubai regulators of the London-based emerging markets lender found that it wasn’t able to prove how some of its wealthy clients had made their money — not an uncommon position for banks to find themselves in. Astonishingly, though, StanChart was also found in some cases to have lacked even the most basic details for rich customers such as their current addresses and phone numbers, Bloomberg News reported.

As a result the bank is reviewing (with the help of Deloitte LLC) all of the 8,000 or so clients at its private banking unit, which oversees about $65 billion of money. As my Bloomberg News colleagues noted, collecting some of that information won’t be easy; it means gathering paperwork from long ago that may never have existed in the first place.

It’s no great surprise that yet another major financial institution is struggling to vet clients. From Deutsche Bank AG to the Dutch-based ING Groep NV, plenty of others have been scolded by regulators for similar. But the procedures at StanChart’s private bank appear to be flawed to a troubling degree for anyone hoping to make it more difficult for people to misuse the banking system.

Regulators expect lenders to know who their customers are, with good reason. How can you be truly serious about detecting illicit money flows otherwise? When banks fail to have adequate processes for even basic stuff like this, you wouldn’t be surprised by more big fines for the industry further down the line.

StanChart has been in trouble before, paying a $1.1 billion settlement to U.S. and U.K. regulators over its handling of transactions that violated economic sanctions on Iran. Britain’s Financial Conduct Authority, which imposed a 102 million-pound ($127 million) fine on the bank as part of that settlement, cited anti-money laundering breaches at StanChart’s network of correspondent banks (which provide services on a lender’s behalf) and its branches in the United Arab Emirates.

In one incident StanChart took cash from a suitcase with “little evidence” of the money’s origin being examined, according to the FCA. It’s not clear whether the private bank was included in that FCA review or if the parent might be exposed to any more penalties, but Bloomberg News said there was no evidence that the private bank had been involved in wrongdoing.

Yet this is a company that has been under scrutiny for years. When StanChart was found to be moving billions of dollars through the U.S. on behalf of Iranian clients in 2012, it agreed to have an outside monitor as part of a deferred prosecution arrangement. Bill Winters, the bank’s chief executive officer, vowed to overhaul the firm’s compliance processes and to root out bad habit when he took over in 2015. That the bank is still addressing what appear to be fundamental errors is a concern.

Knowing your customer, or “KYC” in the jargon of tackling dirty cash, is at the heart of the effort to prevent criminals from accessing the financial system. Without it there’s little hope of the industry ever starting to get to grips with the $2 trillion-a-year money laundering problem, let alone being able to preempt how and where criminals will attempt to move their funds next. There are still too many weak links connecting key parts of the global banking network.

To contact the author of this story: Elisa Martinuzzi at emartinuzzi@bloomberg.net

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Elisa Martinuzzi is a Bloomberg Opinion columnist covering finance. She is a former managing editor for European finance at Bloomberg News.

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