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Risk Management | Anti-Money Laundering

Paradise lost or a money laundering paradise? The role of board of directors in preventing money laundering within European banks. Sven Stumbauer

Globally recognised financial crimes expert

The first quarter of 2019 and most of 2018 were marked by an uptick in money laundering scandals. More surprising is the fact that it has been more than three years after the Panama Papers scandal made headlines. Offshore secrecy and the use of offshore structures, which dominated the banking clientele in the Baltics (so-called non-resident clients), should have been at the forefront of all board of directors’ minds globally, but especially those with a large non-resident customer basis.

Notwithstanding the number of articles written in the press about banks being involved in these scandals, one must wonder why boards of directors have not questioned management more proactively, conducted internal investigations to determine their 116 Ethical Boardroom | Spring 2019

exposure to ongoing and anticipated scandals and developed contingency plans in case of shareholder and regulatory inquiries. It seems, however, that board members at some banks have adopted a ‘head in the sand’ approach, rather than actively managing the crisis that not only comes with reputational issues but also adversely impacts shareholders – as evident in the decline of share prices at some European financial institutions.

The irreparable cost of inaction Since the release of the Panama Papers and the broad coverage received in the media, financial institutions around the world would have been well advised to review their current client portfolios and determine their exposure not only to entities revealed through the Papers but also to their client portfolios in general.

While an offshore structure, such as a personal investment company or trust, may not itself be indicative of illicit activity, some shell companies and other complex structures cited in the Panama Papers have been accused of being used as vehicles for money laundering, payments of bribes, tax evasion and other illicit activities in the past. These structures, which tend to lack transparency in formation and operation, can provide an opportunity for entities to move money without having to disclose their true identities or the nature or purpose of the transactions. The use of offshore accounts

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Ethical Boardroom Spring 2019