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* HSBC, StanChart shares fall to 25-year lows
* Fall follows reports on movements of allegedly illicit
funds
* Banks say have complied with all regulations
* Bank shares fall amid wider sell-off in stocks
(Adds context)
By Alun John, Sumeet Chatterjee and Lawrence White
HONG KONG/LONDON, Sept 21 (Reuters) - Global banks faced a
fresh scandal about dirty money on Monday as they sought to
limit the fallout from a cache of leaked documents showing they
transferred more than $2 trillion in suspect funds over nearly
two decades.
Britain-based HSBC Holdings Plc, Standard Chartered
Plc and Barclays Plc, Germany's Deutsche Bank
AG and Commerzbank AG, and
U.S.-headquartered JPMorgan Chase & Co and Bank of New
York Mellon Corp were among the lenders named in the
report by the International Consortium of Investigative
Journalists and based on leaked documents obtained by BuzzFeed
News.
The report was based on 2,100 leaked suspicious activity
reports (SARs), covering transactions between 1999 and 2017,
filed by banks and other financial firms with the U.S.
Department of Treasury's Financial Crimes Enforcement Network
(FinCEN). Banks are required to file an SAR whenever handling
funds that cause grounds for suspicion of criminal activity.
While some banks said many of the transactions happened a
long time ago, and they had since put robust checks in place,
the reports revealed broader problems with the monitoring system
at the heart of global policing of money laundering and other
criminal activity.
The reports drew calls from some industry groups and
activists for reforms. Investors worried about the potential
fallout for global banks, many of which have faced hefty fines
in the past for lapses in controls and spent billions of dollars
to bolster compliance.
"It confirms what we already knew: that there are huge
amounts of SARs being filed with relatively low numbers of cases
brought through to prosecution,” said Etelka Bogardi, a Hong
Kong-based financial services partner at Norton Rose Fulbright.
"It also brings out the point that managing financial crime
risk goes beyond making SARs," Bogardi said.
The Institute of International Finance, an industry group,
called for reforms. "There is a balance to be struck between
managing financial crime risk and ensuring access to the
financial system for legitimate customers," the IIF said.
Policymakers, regulators and banks have long acknowledged
fundamental flaws in the anti-money laundering system. The rules
around what is deemed "suspicious" can be vague, which leads
some banks to send too many reports and others to send too few.
And the enforcement group is understaffed to handle the millions
of SARs that need to be analyzed to determine whether a crime
has been committed.
HSBC and StanChart shares touched their lowest level in as
much as 25 years, although they fared little worse than their
peers amid a wider sell-off in global stocks.
JPMorgan and Bank of New York Mellon, which were also in the
top five banks mentioned most frequently in the SARs, fell more
than 3% each during trading in New York.
Shares of Deutsche Bank, which was involved in the largest
number of SARs in BuzzFeed's dossier, were down more than 8% at
one point on Monday morning following the reports.
Several analysts, however, played down the scale of
problems.
"Unless there are more substantive allegations of fact, we
expect that this article will not have lasting impacts on the
industry or stock prices," Chris Kotowski, analyst at
Oppenheimer, wrote in a note.
Bank shares were also pressured on Monday by other news,
including worries about the resurgence of the coronavirus in
Europe.
IMPORTANT WORK
Deutsche Bank said the issues raised in the media reports
were "historic," while the German Finance Ministry said on
Monday that the cases linked to Germany in the reports had
already been dealt with.
HSBC also said the information in the reports was historic,
while Standard Chartered pointed to recent investments to
improve its control procedures.
BNY Mellon said it fully complied with all "all applicable
laws and regulations." JPMorgan said it has "thousands of people
and hundreds of millions of dollars dedicated to this important
work."
Many of the suspicious transactions were linked to companies
incorporated in Britain or offshore British territories,
prompting calls from action groups for tougher rules.
"If the government cares at all about the UK's reputation
globally, it must stop rolling out the red carpet to the
criminal and corrupt, and refuse to legitimize their money
through our companies and banks,” Global Witness said.
The UK government said it was working on reforms to its
corporate registry system that will require more checks on
company directors.
MAJOR WEALTH HUBS
Global banks in recent years have boosted investments in
technology and staff to deal with tighter anti-money laundering
and sanctions regulatory requirements across the world.
Thousands of clients were booted out of bank accounts in
major wealth hubs including Hong Kong and Singapore after a
money laundering scandal in Malaysia, the "Panama Papers"
expose, and a global push for tax transparency.
Compliance experts said that part of the problem now was
banks were struggling to distinguish between transactions that
were and were not suspicious, so were simply filing millions of
SARs that enforcement agencies lack the capacity to deal with.
"Lots of banks are struggling with high false positive rates
and the backlog (of existing cases). That's why you see that
sometimes SARs were raised over 100 days after the transaction,"
said Cliff Lam, a director at AlixPartners in Hong Kong.
(Reporting by Alun John, Sumeet Chatterjee and Donny Kwok in
Hong Kong and Lawrence White, Ritvik Carvalho, Sujata Rao and
Karin Strohecker in London, Pete Schroeder in Washington and
Paritosh Bansal in New York; Editing by Raju Gopalakrishnan,
Louise Heavens, Pravin Char and Jonathan Oatis)
