Banks accused of laundering

After yesterday's news that Lloyds TSB and the Bank of Cyprus
are accused of having "knowingly assisted" a money launderer, I do
wonder whose job it is to police the financial markets for villains.
Obviously, the banks will monitor fraudulent activity as they don't
want to lose money, but your basic drug baron, mafia godfather,
terrorist or white-collar thief?  For governments, the latter are
critical to track and crack, but should it be the banks who cough up
for these activities or should it be the government's job?

The only reason for posing these questions is
that banks increasingly are caught out in the spotlight of being
culpable for not being aware enough of what is going on through their
own accounts.  Yesterday, Lloyds TSB and the Bank of Cyprus were
accused of "knowingly" assisting a business man - one Mr. Lycourgos
Kyprianou, founder and former chairman of AremisSoft - to launder his
fraudulent proceeds  "well after the widely publicised downfall of
AremisSoft and the indictment of Kyprianou and others for securities
fraud".

The banks were charged with civil money
laundering claims by the US attorney for the Southern District of New
York, and face fines of up to $130 million for Lloyds TSB and $162
million for the Bank of Cyprus.  According to prosecutors, Mr Kyprianou
laundered several hundred millions of dollars through his Lloyds TSB
account, with over 200 transactions between June 2000 and January 2004.

Well
done Lloyds TSB and the Bank of Cyprus.  You get to join the elite BBUA
Club (Banks Blasted by the US Attorney) which includes AMEX's Private Bank (now sold off to Standard Chartered); SWIFT, who were subpoenaed and weren't happy; and UBS, who helped Saddam Hussein siphon off $650 million in cash during his reign.

This
list is almost endless actually, but I throw these in as, in each
example, I'm pretty sure the organisations involved weren't too happy
at being slapped down by the US authorities for their participation in
these misdemeanours. 

Now banks shouldn't be aiding and
abetting criminals, should they?  That's why it is the banks duty to
Know Their Customer and stop them money laundering.  And it's pretty
easy to know if your customer is a bit suspect isn't it?

"Oh yes, that $300 million I deposited today via the Cayman Islands?  Dividends.  Dividends."

"Ahhh, the £124,052,497.12 transaction.  Yes.  Vaguely remember it but not sure what it was for."

"This one. €3 million in cash?  Bonus sir.  It was my annual bonus."

OK,
this is exaggerated but it can't be far off the truth that clients who
regularly move large funds around catch bankers in a quandry.  On the
one hand, they are high net worth, premium private bank, black card,
lick their shoes and wipe their ass major finger-snappers to their
lackey bank manager.  On the other, they are also going to be the most
likely to have some untoward activity that needs monitoring.  I mean,
the US authorities aren't going to be watching folks like you or I are
they?  (yes, this line was a joke too :)

So the real
question should be whose job is it to Know the Customer, and how well
should they know them?  This relates strongly to yesterday's thoughts
on buyology, and whether banks have really worked out the customer's psychology and relationship. 

This was also the source of a healthy debate at the FSClub in London
on 26th September entitled: "This House believes we really Know Our
Customers".  At the end of the debate the assembled throng of bankers
voted overwhelmingly against the motion, as in banks
really don't know their customers.  Now why would a group of bankers
and bank support agents vote this way?

I guess because, for the
general mass market customer, they don't really know them that well.
However, for the high net worth client moving millions through their
accounts on a regular basis?  Do they really not know these customers?
Surely, these are the one's that banks really should know, either because they are the premium customer or because they should be wary of the money moving through their accounts.

So
the view has to be that the banks who are caught with high net worth
clients moving millions through their accounts, after those clients
have been indicted for fraudulent activities such as money laundering;
for these banks, if they are then caught aiding and assisting those
clients to continue to move those funds ... well, they are likely to
get the book thrown at them.