A new study of banking misconduct in the past five years shows that U.S. regulators and authorities have levied the lion’s share—over 96 percent—of all fines and penalties issued worldwide for economic crimes since January 2012.
And a big chunk of those penalties have disproportionately hit European banks that have U.S. branches, according to the report. The study was done by Corlytics, a global financial intelligence company based in Dublin, with offices in Boston, New York, London and Sydney, Australia.
“The Corlytics Barometer—The Economic Crime Landscape” said the average fine paid by European banks to U.S. authorities is 10 times the average paid by U.S. firms. In fact, a relatively small group of British, German, French and Swiss banks with branches in the United States have paid nearly 40 percent of all fines related to bank misconduct in the United States, according to the study.
Mike O’Keeffe, head of Corlytics operations in the U.K. and author of the report, said he was not surprised by the findings, nor does he think European banks were surprised. “The feeling among Europe’s banks is that they are disproportionately fined when it comes to the size of the fines. Everyone is really concerned about this,” O’Keeffe said.
Why is this disparity occurring? O’Keeffe said he believes a part of the answer is that U.S. penalties against U.S. institutions include banks of all sizes, and the smaller banks and smaller penalties pull down the U.S. average.
But European banks with U.S. branches all tend to be larger institutions that can compete with the biggest banks in the United States, and they generally are hit with the largest penalties and have the highest average. “So it makes it look like the European financial institutions are being disproportionately fined,” O’Keeffe said, when in fact the fines may be very similar to penalties against American banks of the same size.
Financial services lawyer Gerald Blanchard wasn’t surprised by the statistics either, but for a different reason. Blanchard, a partner at Bryan Cave in Atlanta, said U.S. banks often run afoul of U.S. regulations—but usually not intentionally.
However, he explained, “if you look at the large penalties against European banks, you will see that they were actively violating, or assisting others in violating U.S. laws.” He cited European banks that were heavily penalized for offering financial services that violated U.S. sanctions against Iran, or for actively fixing the LIBOR rates.
U.S. banks know better than to intentionally violate American laws, Blanchard said. “I’m not sure what that says about the culture of some of those European banks, or about who is enforcing [the law],” he added.
O’Keeffe called Blanchard’s point “very valid and very reasonable.”
“A lot of [non-U.S.] banks haven’t gotten it [the compliance message] as much as U.S. banks have,” O’Keeffe said.
Other findings in the study include:
• Total fines levied over the period studied were $38.4 billion, with the U.S. Department of Justice levying the most with nearly $29.9 billion. Britain’s Financial Conduct Authority ranked second in the world with nearly $7.4 billion in fines and the New York State Department of Financial Services was third with $6.9 billion—well ahead of the U.S. Securities and Exchange Commission by several billion dollars.
• Regulators are taking a closer look at senior managers who preside over compliance issues.
• The three categories of economic crimes with the largest penalties were sanctions violations with over $13.5 billion in fines; anti-money laundering with over $8 billion; and bribery with just under $7.8 billion.
• There were few fines for cyberfraud, but that trend may change.
The report concludes: “European banks with a presence in North America need to be extremely careful to ensure that they comply. There is evidence to suggest that they will be treated harshly if they do not.”
Sue Reisinger can be contacted at email@example.com.