The jeopardy of the bank in enforcement of normative anti-money laundering and countering financing of terrorism regimes

Publication Date06 Jul 2015
AuthorNorman Mugarura
subjectMatterAccounting & Finance,Financial risk/company failure,Financial compliance/regulation
The jeopardy of the bank in
enforcement of normative
anti-money laundering and
countering nancing of terrorism
Norman Mugarura
Global Action Research and Development Initiative Limited, London, UK
Purpose – The paper aims to examine the jeopardy of the bank in performing its varied functions to
customers, the public and regulatory authorities. The bank’s overriding mandate is accepting deposits
from its customer and to make payments as and when requested. However, banks also perform
investment undertakings and other related functions. Banks have been applauded for facilitating the
ght against crimes such as money laundering and nancing of terrorism but they are times when they
have also been vilied for not doing enough to prevent the foregoing crimes. There is evidence that
banks have sometimes been exploited to facilitate commission of crimes either wilfully or recklessly. In
this regard, banks which do not do enough to prevent commission of crimes have been perceived as
either delinquents or villains for allowing themselves to be exploited for those inclined at committing
money laundering and its predicate offences. The paper explores the varied situations in which banks
have been caught up in both of these foregoing situations. They have done a plausible job in
safeguarding the public and prevention of money laundering and terrorism offences. They have also
been perceived as villains by allowing themselves to be exploited by criminals in perpetuating the
foregoing offences. In both of the foregoing extremes, public opinion has been divided – there are those
who support that banks do a good job and those who brand banks as villains. Those empathising with
banks argue that by requiring banks to report suspected money laundering activities creates unfriendly
business environment and hostilities in a particular bank. Apparently, this school of thought posits that
over-regulation of banks potentially generates a hostile business environment and scares off potential
business clients not to mention generating an anti-business climate in a particular bank. To them, banks
should do just banking without being encumbered to provide overarching oversight responsibilities
such as ghting money laundering and terrorism. The work of preventing crimes should be
responsibility of oversight institutions and authorities, and banks should not be involved in executing
of the foregoing responsibilities. As such, banks have been reduced to act as policemen. However, one
wonders whether the foregoing thesis suggests that banks should just sit back and be exploited for
criminal purposes or accept to acquiesce wrong doing or lawlessness simply for business expediency?
This paper explores the jeopardy of the bank in delivering its mandate and to evaluate where the
balance between its competing obligations needs to be drawn. Banks perform duties to the customer
(emanating from their contractual relationship) and its responsibility to the regulatory authorities to
safeguard the public. The paper provides an exposition of the modern business regulatory landscape
within which banks operate in performing their competing duties towards the customer and the public.
In the modern elusive global market environment, banks are in a jeopardy because people they would
least expect to be involved in money laundering could be chief instigators of money laundering (ML) and
predicate crimes. This includes presidents (e.g. Sana Abacha of Nigeria), minsters, judges and other
elevated government gures could be the ones instigating the commission of money laundering
The current issue and full text archive of this journal is available on Emerald Insight at:
Journalof Money Laundering
Vol.18 No. 3, 2015
©Emerald Group Publishing Limited
DOI 10.1108/JMLC-01-2014-0007
offences in their countries. The jeopardy of the bank is that some of the foregoing political ofcials could
be untouchable political gures on whose its survival depends. Banks need to remain fully alert bearing
in mind that with globalised business environment in which they operate, circumstances can change
very rapidly. It would also be overly unnecessary to blame banks for failures in the regulatory system
beyond their control such as the global crisis – which they could not have foreseen or prevented. Finally,
this paper articulates the uid environment in which the modern bank operates and its attendant
Design/methodology/approach – The paper was written by the analysis of both primary and
secondary data sources focusing on vulnerability of banks in executing their mandate as nancial
institutions. The paper has also utilised case law on misfeasance of banks where courts have found
banks for misfeasance and literally not doing enough in execution of their obligations to prevent
nancial crimes. This paper has also utilised some of the data utilised by the author in writing his PhD
dissertation but done so in a distinctive manner to foster the objective of this paper. The author has
harnessed and evaluated the foregoing data sources and adapted them in different contexts to address
pertinent issues this paper was written on.
Findings – The ndings are not clear cut of whether banks qualify to be branded villains or heroes.
The ndings have demonstrated that the majority of banks are doing a plausible job to prevent money
laundering and prevention of terrorism. There are also discerning situations where banks have been
less valiant in prevention of crimes and in doing so they have put themselves in a negative spotlight.
The paper has utilised different data sources generated on the role of banks in providing frontline
services to the public and their failure to execute the foregoing mandate diligently.
Research limitations/implications – The limitation of the paper is that it would have been better
to evaluate the secondary data sources used in writing it by carrying out interviews on some issues it
hinges. Due to some practicalities, it was not possible to carry out interviews or to send out
questionnaires to banks and other nancial institutions. As such, some of the data sources used could
have been biased.
Practical implications – This paper is of signicant importance for banks, regulatory authorities,
governments and those with a stake in the way banks are regulated and governed. I presume the
foregoing stakeholder constituencies will nd it a worth read and interesting. The paper also
demonstrates that some the information written on banks in newspapers is not always true and urges
caution in utilising newspapers as a source of generating data. It also underscores the need for banks to
be more vigilant in execution of their mandate towards different stakeholder constituencies, so that they
are not inadvertently exploited for criminal purposes.
Social implications – The paper has far reaching implications for banks to be utilised in prevention
of crimes in executing their mandate cautiously. It is important that much as nancial institutions
should be utilised in the foregoing respect, they should not be constrained by over-regulation, as this
also means that they would pay dearly in compliance costs.
Originality/value – The originality of the paper is manifested that while it has relied heavily on
secondary and primary data sources, it was written in a distinctive way to foster the objectives of
writing it. The paper was also evaluated in the context of empirical evidence where banks have used the
inuence to prevent crimes or where they have been less vigilant in doing so and they have been
exposed to criminal exploitation. The foregoing experiences were evaluated carefully using reliable
data sources such as case law and recent legislation.
Keywords Banks as heroes, Banks as villians, Oversight institutions
Paper type Research paper
1. Introduction
Banks and other nancial institutions are by law required to foster an environment of
normative anti-money laundering standards and ethical practices can ourish. This
environment is necessary to ensure that they are not exploited as vehicles to transmit
laundering and

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