Banamex USA, a Citigroup unit that specialises in transferring money between Mexico and the United States, lacked the expertise and appropriate mechanisms and procedures for preventing suspicious activities. Leading up to the 140 million dollar fine, it had been given repeated warnings by the regulator that its preventive measures to counter money laundering were lacking.
What is shocking about this case is that, despite repeated notifications and warnings identifying the bank's weaknesses over a three year period, no changes took place. This also highlights that regulators are taking no prisoners when it comes to combating money laundering in the financial services industry. Also, whilst there is no doubt that penalties should be enforced for, arguably, recklessly allowing (if not knowingly ignoring) suspicious transactions, fines of this magnitude will do little to minimise money laundering or suspicious transactions. Instead they are likely to be diverted elsewhere.
So far, 21 people have been charged, four have pleaded guilty (although they have not yet been sentenced) and one has been convicted and sentenced to 14 years' imprisonment, but no senior executives have been prosecuted. These figures may not look great to some, considering how LIBOR rigging shredded - the already fragile - public faith in the financial serviced industry.
Yesterday, Tom Hayes, a former UBS and Citigroup trader, was convicted under the Financial Services Act (FSA) 2012, for manipulating benchmark rates. He was the first to be convicted and punished under the new section 91 of FSA 2012, and is unlikely to be the last. What stands out from this case is the 14 year prison sentence. It sends a message; you will be punished - and severely so - if you knowingly or irresponsibly commit actions amounting to market manipulation.
This case places personal responsibility and, ultimately, liability at the centre of the financial services industry. No longer is it a defence to say that everyone knew what was happening or, indeed, higher management were aware of, and had condoned, manipulation for the purposes of making profit. Now it is simply … you did the crime, you will do the time.
What was also noteworthy was the decision to place Tom Hayes on the stand. This is often a difficult decision, with unpredictable results. In this case it was a mistake. Clearly the jury, a group of 12, had no time for Tom Hayes and his plea. There appears to be little public appetite to digest such a defence, particularly for someone who received significant bonuses for his actions.
The result of this case highlights the public sentiment towards the financial services and issues a warning from the regulators that enough is enough. What we don't yet know is how bad a taste the lack of senior executive punishment has left in the people's mouths.
For this and other postings, go to RegTechFS blog