Anyone visiting the websites of banks or browsing through their annual reports will find no shortage of claims of "corporate social responsibility". Yet their practices rarely come anywhere near their claims.
In pursuit of higher profits and bumper executive rewards, banks have inflicted both the credit crunch and sub-prime crisis on us. Their sub-prime activities may also be steeped infraudand mis-selling of mortgage securities. They have developed onshore and offshore structures and practices to engage in insider trading, corruption, sham tax-avoidance transactions and tax evasion. Money laundering is another money-spinner.
Worldwide over $2tn are estimated to be laundered each year. The laundered amounts fund private armies, terrorism, narcotics, smuggling, corruption, tax evasion and criminal activity and generally threaten quality of life. Large amounts of money cannot be laundered without the involvement of accountants, lawyers, financial advisers and banks.
The US is the world's biggest laundry and European countries are not far behind. Banks are required to have internal controls and systems to monitor suspicious transactions and report them to regulators. As with any form of regulation, corporations enjoy considerable discretion about what they record and report. Profits come above everything else.
A US government report (see page 31) noted that "the New York branch of ABN AMRO, a banking institution, did not have anti-money laundering program and had failed to monitor approximately $3.2 billion - involving accounts of US shell companies and institutions in Russian and other former republics of the Soviet Union".
A US Senate report on the Riggs Bank noted that it had developed novel strategies for concealing its trade with General Augusto Pinochet, former Chilean dictator. It noted (page 2) that the bank "disregarded its anti-money laundering (AML) obligations ... despite frequent warnings from ... regulators, and allowed or, at times, actively facilitated suspicious financial activity". The committee chairman Senator Carl Levin stated that "the 'Don't ask, Don't tell policy' at Riggs allowed the bank to pursue profits at the expense of proper controls ... Million-dollar cash deposits, offshore shell corporations, suspicious wire transfers, alteration of account names - all the classic signs of money laundering and foreign corruption made their appearance at Riggs Bank".
The Senate committee report (see page 7) stated that:
"Over the past 25 years, multiple financial institutions operating in the United States, including Riggs Bank, Citigroup, Banco de Chile-United States, Espirito Santo Bank in Miami, and others, enabled [former Chilean dictator] Augusto Pinochet to construct a web of at least 125 US bank and securities accounts, involving millions of dollars, which he used to move funds and transact business. In many cases, these accounts were disguised by using a variant of the Pinochet name, an alias, the name of an offshore entity, or the name of a third party willing to serve as a conduit for Pinochet funds."
The Senate report stated (page 28) that "In addition to opening multiple accounts for Mr Pinochet in the United States and London, Riggs took several actions consistent with helping Mr Pinochet evade a court order attempting to freeze his bank accounts and escape notice by law enforcement". Riggs bank's files and papers (see page 27) contained "no reference to or acknowledgment of the ongoing controversies and litigation associating Mr Pinochet with human rights abuses, corruption, arms sales, and drug trafficking. It makes no reference to attachment proceedings that took place the prior year, in which the Bermuda government froze certain assets belonging to Mr Pinochet pursuant to a Spanish court order - even though ... senior Riggs officials obtained a memorandum summarizing those proceedings from outside legal Counsel."
The bank's profile did not identify Pinochet by name and at times he is referred to (see page 25) as "a retired professional, who achieved much success in his career and accumulated wealth during his lifetime for retirement in an orderly way" (p 25) ... with a "High paying position in Public Sector for many years" (p 25) ... whose source of his initial wealth was "profits & dividends from several business[es] family owned" (p 27) ... the source of his current income is "investment income, rental income, and pension fund payments from previous posts " (p 27).
Finger is also pointed at other banks. Barclays France, Société Marseillaise de Credit, owned by HSBC, and the National Bank of Pakistan are facing allegations of money laundering. In 2002, HSBC was facing a fine by the Spanish authorities for operating a series of opaque bank accounts for wealthy businessmen and professional football players. Regulators in India are investigating an alleged $8bn (£4bn) money laundering operation involving UBS.
Nigeria's corrupt rulers are estimated to have stolen around £220bn over four decades and channelled them through banks in London, New York, Jersey, Switzerland, Austria, Liechtenstein, Luxembourg and Germany. The Swiss authorities repatriated some of the monies stolen by former dictator General Sani Abacha. A report by the Swiss federal banking commission noted (page 7) that there were instances of serious individual failure or misconduct at some banks. The banks were named as "three banks in the Credit Suisse Group (Credit Suisse, Bank Hofmann AG and Bank Leu AG), Crédit Agricole Indosuez (Suisse) SA, UBP Union Bancaire Privée and MM Warburg Bank (Schweiz) AG".
UK banks are estimated to have processed around $1.3bn of General Abacha's loot. Barclays Bank was said to have handled more than $170m of the general's monies. The Financial Services Authority (FSA) acknowledged that 42 accounts at 23 banks were used and that "15 of the banks had significant control weaknesses", but they were not named. Despite questions in parliament the UK government has failed to name the banks or return the entire loot to Nigeria.
Banks are not going to voluntarily embrace honesty, integrity or social responsibility. Without tougher regulation, breaking of the link between profits and executive remuneration and personal penalties on company executives for wrongdoings there is no chance of banks behaving responsibly. Politicians are doing little to translate public concern into effective policies.