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Book part
Publication date: 29 August 2017

Bonnie G. Buchanan and Craig Anthony Zabala

In 2012, the New York Department of Financial Services threatened to revoke Standard Chartered Bank’s U.S. license for alleged money laundering violations involving Iran…

Abstract

In 2012, the New York Department of Financial Services threatened to revoke Standard Chartered Bank’s U.S. license for alleged money laundering violations involving Iran. The bank’s settlement with US regulators and law enforcement cost the bank approximately $1.099 billion. In 2013, as a signal that no bank was too big to jail, the Holding Individuals Accountable and Deterring Money Laundering Act was introduced into the U.S. Congress. We focus on a clinical examination of the Standard Chartered money laundering case and examine the role of the US regulators and law enforcement in the settlement.

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The Handbook of Business and Corruption
Type: Book
ISBN: 978-1-78635-445-7

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Article
Publication date: 7 January 2019

Henry Balani

This paper aims to analyze the impact of the introduction of anti-money laundering (AML) regulations on bank stock valuations in the USA. Regulations can have a negative…

Abstract

Purpose

This paper aims to analyze the impact of the introduction of anti-money laundering (AML) regulations on bank stock valuations in the USA. Regulations can have a negative impact on financial returns as a result of increased operational costs, potentially driving down stock valuations and loss of profitability. However, regulations can also have a positive impact on valuations because of greater oversight and increased investor confidence. Findings are useful for assessing the market impact of future regulations.

Design/methodology/approach

Event studies and cross-sectional regression analysis are used to determine the impact on bank stock valuations together with specific characteristics of bank size and geographic headquarter location of the bank for identified AML regulations. Hypothesis related to the impact of the introduction of AML regulations are empirically tested based on the statistical significance of cumulative abnormal returns of markets.

Findings

AML regulations introduced in 1998 had a positive impact on bank stock valuations, while the USA PATRIOT Act legislation of 2001 had a negative impact. These findings suggest that recent AML regulation is a cost compliance burden for banks, where the costs of operations outweigh the benefits of improved processes. Larger banks see a more negative impact on their bank stock valuations compared to smaller banks, suggesting the market perceives greater cost and less profit for larger banks. Results also show that the location of bank’s headquarters does not significantly impact bank stock valuations.

Originality/value

This paper specifically focuses on the impact of AML regulations on the US banking sector, providing investors, academics and regulators additional insight on the market dynamics of regulations. Identifying whether the introduction of regulations has a significant impact on a bank’s performance will provide both banks and regulators clarity as to the net benefits associated with the current and future AML legislation.

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Journal of Money Laundering Control, vol. 22 no. 1
Type: Research Article
ISSN: 1368-5201

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Article
Publication date: 3 October 2016

Peter Yeoh

The purpose of this paper is to trace how and why the market-designed Libor benchmark turned bad, thereby necessitating a regulatory response.

Abstract

Purpose

The purpose of this paper is to trace how and why the market-designed Libor benchmark turned bad, thereby necessitating a regulatory response.

Design/methodology/approach

The study relies on primary and secondary data in the public domain and complemented by a single-case study.

Findings

The study demonstrates how and why Libor benchmark rigging led to reforms in the UK and elsewhere.

Research limitations/implications

The study relying mainly on the secondary data analysis needs to be enhanced by further empirical-based studies.

Practical implications

Insights generated by the study suggest why it might not be worthwhile for market participants to game the system.

Social implications

Libor benchmark affects the financial system widely with varying significance to the wider public. With better regulatory oversight, its negative impact is expected to be mitigated considerably.

Originality/value

The seriousness with which the enforcement agency and judiciary now treat financial crime weakens the earlier public perception that white-collar crime is enforced differently.

Details

Journal of Financial Crime, vol. 23 no. 4
Type: Research Article
ISSN: 1359-0790

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Case study
Publication date: 20 January 2017

Russell Walker

This case covers the scandal that occurred in 2008 at Société Générale when one trader, Jérôme Kerviel, lost the prominent French bank nearly €5 billion through his…

Abstract

This case covers the scandal that occurred in 2008 at Société Générale when one trader, Jérôme Kerviel, lost the prominent French bank nearly €5 billion through his unauthorized trading. The case describes Kerviel’s schemes as well as SocGen’s internal monitoring and reporting processes, organizational structures, and culture so that students reading the case can identify and discuss the shortcomings of the firm’s risk management practices. The case and epilogue also describe the French government’s and Finance Minister Christine Lagarde’s reactions to the scandal (e.g., imposition of a €4 million fine and increased regulations), prompting students to consider the role of government in overseeing that healthy risk management practices are followed in key industries (such as banking) that are highly entwined with entire economies. Finally, the case encourages students—during class discussion—to critically consider whether it is truly possible for one rogue trader to act alone, which elements in a work environment enable or even encourage risky behavior, and who should be held accountable when such scandals occur. Interestingly, this case highlights a story that is not unique. Prior to Kerviel’s transgressions were the similar scandals of Nick Leeson at Barings Bank and Toshihide Iguchi at Daiwa Bank, yet history has repeated itself. This case gives students a vivid example of the dangers of internal, self-inflicted risk on organizations, and it opens a discussion on how to avoid it.

After completing this case, students will be able to:

  • Identify shortcomings in a firm’s risk management practices (i.e., processes, systems, structures)

  • Evaluate the role and interests of governments as well as peer firms in overseeing healthy risk management practices in an industry

  • Understand the dangers of self-inflicted risk and consider the elements in an organization (e.g., leadership, compensation structure, incentives, recruiting) that impact its risk environment

Identify shortcomings in a firm’s risk management practices (i.e., processes, systems, structures)

Evaluate the role and interests of governments as well as peer firms in overseeing healthy risk management practices in an industry

Understand the dangers of self-inflicted risk and consider the elements in an organization (e.g., leadership, compensation structure, incentives, recruiting) that impact its risk environment

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Kellogg School of Management Cases, vol. no.
Type: Case Study
ISSN: 2474-6568
Published by: Kellogg School of Management

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Article
Publication date: 15 January 2020

Peter Yeoh

This paper aims to provide insights as to why money laundering persists in banks and their weaknesses as gatekeepers.

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Abstract

Purpose

This paper aims to provide insights as to why money laundering persists in banks and their weaknesses as gatekeepers.

Design/methodology/approach

This paper contextualizes the design and proliferation of anti-money laundering (AML) measures; investigates the different manners of conceptualizing them; and provides insights pertaining to probable limitations of these measures. The paper relies on primary data from statutes and secondary data from published sources.

Findings

The paper’s findings suggest that competitive pressures, shareholders return imperative, and lucrative misaligned incentives for management contributed to weaknesses in effective compliance in banks.

Practical implications

Insights drawn from this paper reinforces the notion that banks need to seriously review their business approaches, as well as their roles as gatekeepers.

Social implications

Given the slew of corporate scandals and other materially harmful misjudgments in money-laundering compliance, banks might need to seriously review their role and obligations in the economy.

Originality/value

Much has been said about money-laundering activities enabled by the banking sector. This paper contributed to insights as to why they persist despite AML rules, and what measures could be further taken to enhance compliance effectiveness.

Details

Journal of Money Laundering Control, vol. 23 no. 1
Type: Research Article
ISSN: 1368-5201

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Article
Publication date: 4 May 2012

Robert Mazur

The objective of this article is to examine the criminal conduct of convicted bankers and institutions for the purpose of identifying any measurable factor that can…

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496

Abstract

Purpose

The objective of this article is to examine the criminal conduct of convicted bankers and institutions for the purpose of identifying any measurable factor that can determine the degree of risk an organization faces from the threat of organized crime.

Design/methodology/approach

Primary research was conducted of the money laundering related acts of bankers and banks charged with criminal offenses. In addition, interviews were conducted of professionals with first‐hand knowledge, directly involved in the events related to these prosecutions.

Findings

Although maintenance of a competent anti‐money laundering compliance program is required by law, the real measure of a financial institution's risk from organized crime is directly proportional to the degree with which the business line of an institution genuinely embraces, participates in, and benefits from the anti‐money laundering protocols established by the institution's compliance function.

Originality/value

This paper is original research conducted and presented from the viewpoint of a specialist.

Details

Journal of Money Laundering Control, vol. 15 no. 2
Type: Research Article
ISSN: 1368-5201

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Article
Publication date: 3 May 2016

Selina Keesoony

This paper aims to explore the underlying problem of tackling money laundering, namely, the difficulty of enforcing international laws and whether this is a problem which…

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7610

Abstract

Purpose

This paper aims to explore the underlying problem of tackling money laundering, namely, the difficulty of enforcing international laws and whether this is a problem which is too great to overcome in practice.

Design/methodology/approach

A doctrinal approach is used to discuss international anti-money laundering (AML) laws and question whether money laundering can be truly regarded as an international crime. A comparative approach with case studies of corruption in financial institutions illustrates the problems which law enforcement might encounter. The advantages and disadvantages of tackling money laundering will be highlighted to elucidate both the negative impacts of the crime and the reasons why some states may not be tackling money laundering as forcefully as they could.

Findings

Uniformity of AML laws among different countries may deter criminals from laundering money. The ratification of the Vienna Convention can help to facilitate uniformity of legal rules. States need robust domestic laws to tackle money laundering. Money laundering is an international crime, although not always a specific crime in international law. Moreover, it is generally advantageous to consider money laundering to be a specific crime under international law.

Originality/value

The article questions the effectiveness of current AML laws by examining the foundations of international law. Suggestions as to how uniformity can be achieved are given. A comparative approach is also used to demonstrate the extent of the crime, weaknesses in companies’ regulatory regimes and how each State responds to money laundering. The comparison also reveals State-specific issues which fuel money laundering. Moreover, the article explores the practical and legal advantages and disadvantages of money laundering being considered a specific crime in international law.

Details

Journal of Money Laundering Control, vol. 19 no. 2
Type: Research Article
ISSN: 1368-5201

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Article
Publication date: 20 June 2019

Peterson K. Ozili

This study investigate the impact of social activism on financial system stability.

Abstract

Purpose

This study investigate the impact of social activism on financial system stability.

Design/methodology/approach

Financial stability was analysed from two complementary perspectives: bank-led financial stability and financial system stability driven by sector-wide credit supply. Social activism was analysed from three perspectives: gender equality advocacy, environmental sustainability advocacy and social protection advocacy.

Findings

The findings reveal that gender equality and environmental sustainability advocacy have significant positive effects for financial stability, whereas social protection advocacy has a significant negative effect for financial stability. In addition, social activism has negative effects for financial stability in the post-2008 financial crisis era. Finally, there are differential effects for country-groups, for instance, social activism strongly improves bank-led financial stability in African countries and for BLEND countries (countries that are eligible for International Development Association (IDA) borrowing based on per capita income levels and are also creditworthy for some borrowing from the International Bank of Restructuring and Development). The findings are relevant for the on-going debate about whether social inclusivity and activism has any economic value for the stability of businesses and the financial system. The findings have implications.

Research limitations/implications

The implication for policy-making is that the pressure on, or commitment of, financial institutions to be socially inclusive in all social matters such as gender equality, environmental sustainability and social protection does not guarantee stability in the financial system – whether bank-led financial stability or sector-wide financial stability. Therefore, regulators should ensure that financial institutions exercise careful discretion when adjusting their risk models to include all “social risk” factors amidst the recent pressure on corporations to be socially inclusive.

Practical implications

Another implication for business practice is that business leaders in financial institutions should identify the optimal level of social inclusivity that improves the stability of their corporations, because it would seem counterproductive if business leaders adopt full-scale social inclusion (or considerations) that subsequently make their corporations financially unstable which could lead to loss of shareholders wealth.

Originality/value

This study is the first attempt to investigate the impact of social activism on financial stability to determine whether greater social activism promotes stability or instability in the financial system.

Details

Journal of Financial Regulation and Compliance, vol. 28 no. 2
Type: Research Article
ISSN: 1358-1988

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Book part
Publication date: 19 August 2017

Mikel Larreina and Leire Gartzia

In the last decades, many of the most talented and promising young graduates in the developed economies have joined the financial industry. Simultaneously, ill-designed…

Abstract

In the last decades, many of the most talented and promising young graduates in the developed economies have joined the financial industry. Simultaneously, ill-designed incentives’ schemes have favored the development of a culture in which excessive greed, free-riders’ behavior, unreasonable appetite for risk, and short-term decision making have endangered the economy and, potentially, have laid the foundations for financial, economic, social, and environmental crises.

In this chapter, we review current challenges in the financial industry from the lens of human and social capital. We examine some of the factors that allowed unethical behavior and a short-term financial focus in the financial sector, examining how compensation and an extremely competitive culture became key elements that favored greedy and manipulative behavior and ultimately generated socially harmful human and social capital in the financial sector. Finally, we discuss the emergence of a number of game-changers (namely, Brexit, FinTech, the growing relevance of ethical standards, and the increasing participation of women and millennials in the industry) that might represent potential promotors of change and help restructure and reshape the financial industry.

Details

Human Capital and Assets in the Networked World
Type: Book
ISBN: 978-1-78714-828-4

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Article
Publication date: 31 March 2020

David Mathuva, Samuel Kiragu and Dulacha Barako

This study aims to examine the extent and drivers of anti-money laundering (AML) disclosures in the audited annual reports of regional listed banks in Kenya.

Abstract

Purpose

This study aims to examine the extent and drivers of anti-money laundering (AML) disclosures in the audited annual reports of regional listed banks in Kenya.

Design/methodology/approach

Using the Financial Action Task Force recommendations and other guidelines, the authors develop an AML disclosure index that is used to score the extent of AML disclosures by banks. A sample of 15 listed regional banks in Kenya over the period of 2007-2017 is used. Using this sample, the authors performed fixed-effects regressions to identify the significant determinants of AML disclosures.

Findings

The study establishes a low level of AML disclosures in the audited annual reports of sampled banks. The extent to which the AML disclosures improved across three distinct regulatory regimes over the period of 2007-2017 is reported. The authors find that the AML disclosures are largely driven by corporate governance (board size and audit committee size) and the ratio of diaspora remittances to GDP.

Practical implications

Owing to the global nature of money laundering activities, the study suggests that the Central Bank of Kenya needs to internationalize AML regulations and follow internationally accepted best practices in AML to respond to emerging trends in money laundering and related crimes.

Originality/value

To the best knowledge of the researchers, this is perhaps the first study to examine the drivers of AML disclosures by banks in a developing economy in the East and Southern African region. Given the global nature of money laundering, the study makes an important and original contribution to the body of knowledge with potential for replication in other jurisdictions. The findings will also form a basis for developing an AML reporting or disclosure framework.

Details

Journal of Money Laundering Control, vol. 23 no. 3
Type: Research Article
ISSN: 1368-5201

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