Banks’ anti-money laundering costs rise

From the Associated Press

Complying with anti-money laundering laws has been much more expensive than banks anticipated, and some still aren’t meeting all requirements, a new survey says.

Banks around the world saw compliance costs jump an average of 58% over the last three years -- more than in the previous three years, and higher than the 43% increase banks predicted in 2004, said a survey commissioned by Swiss cooperative KPMG International.

Among the six regions surveyed, North American banks saw the highest percentage increase, with costs rising 71% over the last three years. The Middle East and Africa region was close behind with a rise of 70%.

Banks’ compliance costs rose 58% in Europe, 37% in Asia, 59% in Central and South America and 60% in Russia.


Most of the money went toward buying technological systems and hiring experienced personnel to monitor transactions, said the KPMG report, which did not measure the dollar value of the costs.

“A lot of institutions were not automated to the degree regulators were expecting them to be,” said Teresa Pesce, a U.S. partner at KPMG’s forensic practice.

North America respondents said they predicted a cost increase of 28% in the next three years. Globally, costs are expected to increase 34% in the next three-year period.

Many governments require that banks take steps to prevent money laundering. Money laundering involves making certain financial transactions to hide the source, nature or destination of illegal funds.


The United States has the Bank Secrecy Act, which was passed in 1970 and amended by the Patriot Act of 2001. It has since been used increasingly to stop the flow of financing to terrorist organizations.

According to KPMG’s survey, 93% of North American respondents said they had a formal system in place, meaning 7% of banks were not in compliance with the act’s testing requirements.

Noncompliance can be costly.

Last year, Fort Lauderdale-based BankAtlantic Bancorp Inc. agreed to forfeit $10 million to the U.S. government to avoid criminal charges that it permitted millions of dollars in suspected drug money to be laundered through its accounts.


And in 2005, Riggs Bank, now owned by Pittsburgh-based PNC Financial Services Group Inc., agreed to pay a $16-million fine and pleaded guilty to a felony charge of failing to report suspicious transactions involving foreigners including former Chilean dictator Augusto Pinochet and members of his family.

Despite the possible ramifications, just 63% of the survey’s North American respondents said anti-money laundering issues were a high priority for senior management.

Independent research company RS Consulting surveyed 224 of the world’s 1,000 largest banks, in 55 countries, through telephone interviews over a six-week period.