Give a man a gun and he can rob a bank. Give a man a bank and he can rob the whole world. So the saying goes, but sometimes reality is far more scary than fiction.
Some of the richest banks in the world have had to pay the largest fines for dodgy dealings, or failing to see what is going on right under their noses. Many of the richest private banks have extremely basic technology and unsophisticated tools.
Perhaps this is why so many banking institutions have been fined for helping the criminal element hide or clean their money?
Dodgy Dealings in the Banking Sector
In 2014 EFG bank, a private bank was fined an astronomical £4.2 million for failing to take reasonable care to establish and maintain effective anti-money laundering (AML) controls for high risk customers.
The FCA deemed these failings to be of a serious nature and they highlighted the fact that this was going on for more than 3 years.
The report by the FCA reviewed 36 customer files and of these, 17 were problematic between December 2007 and January 2011.
These highlighted that the bank had failed to conduct due diligence, which was posing significant money laundering risks, with insufficient evidence that the bank had tried to mitigate those risks.
Of these 17 files, 13 were directly linked with criminal activities, whereby the customer had been charged with criminal offences.
PEP’s or politically exposed persons have to undergo some serious KYC protocol in order to be accepted by banks. But over the years, many institutions have failed to take the necessary steps to monitor these cases.
In 2017 the Prime Minister of Iceland faced calls to resign after being named in an enormous leak of documents showing how offshore shell companies and tax shelters were being used to secret funds by a Panamanian law firm.
Step up Blockchain
Blockchain technology and cryptos are regularly in the news and are now coming to the forefront with even major financial institutions investing in their technology. But this wasn’t always the case.
In 2017, JPMorgan Chase CEO Jamie Dimon siad of Bitcoin: “It’s worse than tulip bulbs,” talking about the mania that swept the 17th century, where tulips effectively became worth thousands of dollars.
He said “It won’t end well. Someone is going to get killed.” Lloyd Blankfein, senior chairman of Goldman Sachs, agreed with him, “Something that moves 20% [overnight] does not feel like a currency. It is a vehicle to perpetrate fraud.”
And yet only last week JPMorgan Chase invested big in ConsenSys, the company behind a lot of the Ethereum blockchain infrastructure.
The question is, could the blockchain and decentralized technology replace the banking system? Is that what banks are afraid of?
Crypto has had a bad name for being used as a tool for money laundering. However, a report in 2017 showed that only 1% of Bitcoin was being used for illicit purposes.
More and more digital exchanges and wallets are standing up for a Zero tolerance policy to illicit use of the crypto coins.
LocalBitcoins is one exchange that is very loud and clear on that point, and yet more exchanges are standing up and saying “not here!”, effectively trying to push out the criminal element from the crypto domain.
The Blockchain could in fact solve a lot of issues from the banking and asset management sectors.
One company Cook Finance which offers a blockchain platform for asset managers and investors to meet, whereby investors can browse and select the strategies that best suit them, is completely transparent to all.
Cook Finance is not a bank. The blockchain is decentralized which means the asset managers and the clients are the only two people in the room.
The blockchain calculates, verifies and reconciles any transactions taking place.
No room for hidden transactions or market manipulation, meanwhile the asset managers do not have to share their strategies as they are carried on smart contracts on the blockchain.
And this is where this technology comes into its own. Cheaper than using a bank, faster than using an asset manager and generally much safer.
Now it’s for the banks to decide if to join the party or to perhaps lose chunks of their business to the blockchain?