The scale of fines meted out so far against financial institutions for AML breaches could be dwarfed by yet greater amounts, it has been claimed.

Wealth management and other financial sector firms have been hammered with fines over lax anti-money laundering controls – with BNP Paribas’ recent fine the most egregious example. But the amounts levied so far are only the “tip of the iceberg” and total fines could reach £250 billion ($426.4 billion) by the end of the decade, according to several commentators.

One of those commentators is Anomaly42, a business that focuses on spotting money laundering activity through Big Data analysis. Another is Smart KYC, which concentrates on name-searches and the exploitation of datasets using multiple languages.

Andrew Sutcliffe, the CEO of Smart KYC, said to Wealth Briefing: "I certainly agree with everybody else that the fines are likely to go up massively for some time.

"One of the main problems that we see is the phenomenon of international high-net-worth clients. They have a complicated background that has to be probed. To do it you need to have a solution which uses many languages to peruse both structured data, on the watchlists, and unstructured data, much of which is buried in press articles, on Wikipedia entries and on social media sites such as LinkedIn.

"The down-side of using many different sources is that you end up with vast data. To comb through it, you need a powerful semantic engine. If you were to rely on your analysts to do it manually, it would take months and even years. It also has to be done automatically because the client you are onboarding expects the whole process to be relatively quick and painless. So you need to do that while also keeping the regulator happy.

“Do you know what a Levensthein distance is? It's essentially around algorithms that measure the difference between words that use commonly in spellchecks when you're searching for the particular names we search in, all languages, all alphabets, so we have technology that takes the single name and then turns it into other characteristics so that you can actually search on every possibility, every outcome.

“It's not very common in the KYC software world; it's very unusual. Most KYC searching is done on a single-language basis. One of our great strengths is our multi-language multi-alphabet process, which is increasingly valuable. With clients coming from all parts of the world, in all different areas, it's much harder to search using one language. You have to search using multiple languages at the same time.”

In an effort to stem the tide of fines, banks globally are employing armies of compliance officers to counter the rising threat of money laundering, which is estimated at between $1.44 trillion and $3.59 trillion annually.

Counterparties

In some cases, where one bank might have used many counterparties to hide its illicit transactions, or allow such transactions to occur, the potential scale of offences – and potential fines – could be much larger than recent recorded fines suggest

Freddie McMahon, director of strategy and innovation at Anomaly42, said of the situation: “The gargantuan fines levied against banks to date are merely the tip of the iceberg. Technology today is laying bare complex money-laundering ecosystems in a way that was never possible previously. Once legislators and regulators have dealt with one bank, they are moving onto the other banks embroiled in these ecosystems, even if unknowingly. It's only a matter of time before more major banks receive sizeable fines."

"The top banks are starting to understand that the rules of the game have changed, that the simplistic money laundering ring is a thing of the past. But the vast majority are still blissfully unaware of the storm that is coming their way. The fines currently being levied against banks are set to be the new norm in global banking, and our research suggests exposure of up to £250bn in the next six years," he added.  

This publication has regularly had to update its list of miscreants in wealth management; the $8.97 billion fine on Paris-listed BNP Paribas, over breaches of US sanctions against blacklisted nations such as Sudan and Iran, is the biggest yet.

At a recent summit in London organised by the publisher of this news service, investment managers said the amount of fines, and the potential for more litigation, is a potential drag on the share price performance of banks, particularly non-US banks as the US has been able to use its financial clout to target foreign institutions over alleged breaches.