- The Washington Times - Monday, July 9, 2007

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

Banks around the world saw compliance costs jump an average of 58 percent over the past three years — more than in the previous three years and higher than the 43 percent 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 cost increase, with costs rising 71 percent over the past three years. The Middle East and Africa region was close behind, with a rise of 70 percent. Banks’ compliance costs rose 58 percent in Europe, 37 percent in Asia, 59 percent in Central and South America, and 60 percent in Russia.


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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, U.S. partner at KPMG’s forensic practice.



North American respondents said they predict a cost increase of 28 percent in the next three years. Globally, costs are expected to increase 34 percent 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, enacted in 1970 and amended by the USA 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 percent of North American respondents said they had a formal system in place, meaning 7 percent of banks were not in compliance with the act’s testing requirements.

Noncompliance can be costly.

Last year, Fort Lauderdale, Fla.-based BankAtlantic 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.

In 2005, Riggs Bank, the D.C. landmark 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 ramifications, just 63 percent of the survey’s North American respondents said anti-money-laundering issues were a high priority for senior management.

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

Ninety-five percent of North American banking executives surveyed said the number of suspicious activity reports had increased, and 63 percent of those same executives said the number had increased “substantially.”

“The better your systems are, the better your monitoring is, the more you’ll see — that’s going to drive up the number to some extent,” Mrs. Pesce said.

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