Too often senior management puts profits before regulations to address criminal activities, corruption and terrorism groups which are growing more sophisticated, say U.S. Justice and bank regulatory officials

WASHINGTON (Thomson Reuters Foundation) – In a warning to banks, top U.S. officials called on senior management at financial institutions to put anti-money laundering and bank secrecy laws at the heart of corporate compliance as organised crime, terrorism and corruption around the world grow more sophisticated and difficult to track.

The tone set at the top by corporate boards and by chief executives is critical and yet all too often their message is that risky activities are tolerated in the name of generating high profits, said U.S. Deputy Attorney General James Cole at an anti-money laundering conference on Monday.

"Too often they are willing to take advantage of any edge to make money," Cole said.

Blaming a few bad actors and calling anti-money laundering failures isolated incidences is not good enough - rather a strong culture of accountability must be instilled throughout financial institutions so that all employees understand that compliance matters, Cole said.

Failure to report suspicious activities and check customers' backgrounds and their source of funds cannot be simply brushed off as an isolated instance when there is a systematic lack of attention to regulatory compliance, he added.

The HSBC case was cited as an example of top management failure in a high-profile money-laundering case. The British bank was fined $1.9 billion in 2012 for allowing itself to be used to launder drug money flowing out of Mexico.

Cole's warning to the conference echoed the words from a top bank regulator at the same event on Sunday. Thomas Curry, Comptroller of the Currency who regulates nationally chartered U.S. banks, told risk and compliance officers in a speech that the U.S. Bank Secrecy Act and anti-money laundering regulations are vital in tracking illicit finance, tracking trans-national organised crime and combating terrorist financing.

Yet there is a disturbing frequency of violations by large institutions, Curry said. Ineffective risk management systems, corporate governance processes that are too weak and management unwillingness to commit adequate resources to the task are part of the problem, he said.

A worrying trend is a lack of commitment by senior management. "That's unacceptable, and it speaks to the quality and focus of management," Curry said.

At the same time, he acknowledged that criminal gangs are growing increasingly sophisticated and they are changing their tactics in the way they use the financial system, making it harder to detect illicit and illegal flows.

"The bad guys have ample resources and they move quickly from one base of operations to another, finding sanctuary in places where law enforcement, or sympathy for U.S. policy objectives, is weakest. Illicit funds are like flowing water," Curry said.

In a session on international trends, experts in money laundering from district U.S. attorney offices in New York and Florida, and from banks noted the following emerging patterns:

- Mexican drug money increasingly is flowing southward through central American countries, particularly those using the U.S. dollar as their currency, as a route to launder their funds into the U.S. banking system. The routes go through Nicaragua, Panama and Guatemala. Another transit point is the San Andreas islands, owned by Columbia.

- Money from organised crime in Russia, eastern Europe and former Soviet Union countries had used Cyprus as a major centre for laundering funds, but since the financial crisis hit Cyprus banks, regulators are unclear as to the exact routes that Euro-Asian criminal groups now are using. Luxembourg, Lebanon and some Pacific islands are suspected, and some money also goes through Lithuania and Latvia, and through Croatia, Serbia and Bosnia, using shell companies often registered in the United States or Kenya.

- Purchase of U.S.-made cars for export is one way that sums of money is fraudulently transferred into the United States by criminals.

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