Preventing Financial Crimes: The Vital Role of Background Checks in Combating Money Laundering

Money laundering is still a major challenge in the complicated world of financial transactions. The shadows of illicit financial activity stretch across the globe, from high-profile scandals to covert operations. This blog dives into some high-profile money-laundering cases, demonstrating the immense scale of these crimes and emphasising the critical importance of background checks in avoiding such illegal activities.

1. The 1Malaysia Development Berhad Scandal: A Cautionary Tale

Amount Laundered: US$4.5 billion

The significance of rigorous employee background checks has never been more clear in the aftermath of the notorious 1MDB affair, in which funds allocated for Malaysia's economic development were plundered. This financial disaster, which engulfed multiple countries and financial institutions, underscores an important lesson for businesses worldwide.

The Monetary Authority of Singapore (MAS) fined eight banks almost S$30 million for violating anti-money laundering regulation in the case, which involved the laundering of cash across multiple financial systems, including Singapore's former Goldman Sachs bankers Tim Leissner and Roger Ng were key figures in this scandal, with both receiving lifetime prohibition orders from MAS for their involvement.

This multibillion-dollar fraud may have been avoided if more thorough pre-employment screening had been used. Background checks act as a key protection, scrutinising potential employees' integrity and past behaviour. These checks are essential in businesses that deal with vast financial transactions, such as banking and other financial institutions. They investigate not only qualifications and career history, but also any criminal records or unethical behaviour in previous roles.

This incident serves as a sharp reminder of the importance of proper background checks in protecting an organisation's integrity and financial stability. It emphasises the importance of organisations investing in rigorous screening methods to ensure they choose employees who adhere to the highest ethical standards.

2. Wirecard Scandal: A Call for Rigorous Employee and Client Screening

Amount Laundered: US$2.1 billion

 

The Wirecard scandal, which serves as a harsh reminder of the catastrophic implications of insufficient due diligence, emphasises the significance of thorough employees and client screening. Wirecard, a payment company, startled the financial world in June 2020 when it announced that approximately two billion euros (S$2.9 billion) had gone missing from its accounts. Investigations revealed a network of deception involving faked contracts, overstated earnings, and forged client lists, some of which involved Singapore's banking sector.
 
The Monetary Authority of Singapore (MAS) responded by fining DBS, OCBC, Swiss Life (Singapore), and Citibank's Singapore branch a total of S$3.8 million for violations of anti money laundering (AML) standards. Singaporean businessman Henry Yeo, who assisted the laundering of S$123,070 stolen from Wirecard Asia, was a crucial figure in this incident. Yeo and Wirecard employee James Aga Wardhana were both condemned to prison for their roles in this fraudulent scam.

This scandal emphasises the crucial need of stringent screening measures for not only employees but also clients and business partners. Thorough background checks can disclose potential red flags in an individual's history, such as previous involvement in financial malpractices or illegal activities, in the finance sector, where large sum of money are managed. Enhanced due diligence, particularly for high-risk clients and transactions, is critical in limiting risks and preventing financial fraud.

Wirecard's downfall serves as a cautionary tale, underscoring the necessity for organisations to invest in robust screening mechanisms to ensure integrity and prevent similar financial catastrophes.

 

3. Standard Chartered's AML Failures: A Case Study in Regulatory Compliance

Amount Laundered: $438 million

The British banking behemoth Standard Chartered experienced a series of regulatory issues beginning in 2004, resulting in hefty fines for failing to comply with anti money laundering (AML) regulations. The bank's lack of an AML compliance programme drew the attention of the Federal Reserve and the New York regulator.

Between 2005 and 2006, Standard Chartered violated Iranian sanctions by conducting transactions and working with Iranian organisations in contravention of regulatory agreements. For these infractions, the bank was fined $670 million in 2012. This fine, however, did little to prevent its illegal behaviour.

Further investigation by New York's Department of Financial Services (DFS) in 2012 revealed that the bank had failed in its AML controls, contributing to the clearance of US requirements for $265 billion in transactions with the Iranian government. Furthermore, Standard Chartered was accused of breaking US sanctions against Burma, Libya, and Sudan.

By 2019, both the Federal Reserve and the Financial Conduct Authority (FCA) in the United Kingdom had uncovered serious flaws in the bank's anti-money laundering (AML) processes, particularly in client-related controls. Standard Chartered was fined $1.1 billion by UK and US regulators for its continuous failure to create an effective AML compliance programme.

The experience of Standard Chartered is an important lesson for financial organisations around the world. It emphasises the need of strong AML compliance programmes, as well as the requirement for continuous monitoring and updating of these systems in order to conform with increasing regulatory standards and avoid costly legal and reputational consequences.

Conclusion

These incidents demonstrate the critical function of background checks in combating money laundering. Financial institutions and enterprises must implement thorough and ongoing background check procedures. This proactive strategy is about more than just regulatory compliance; it's about defending the global financial system's integrity and economies from the destabilising effects of financial crime.

For businesses seeking to fortify their defenses against financial crimes, investing in robust background checks is a vital step. Partnering with experienced background screening company like Complygate assists in providing the expertise and tools required to navigate the complexities of anti-money laundering efforts. Talk to us to book a free demo today!