A number of European banks have recently had to pay increasingly large fines in order to avoid criminal prosecutions and remain within the lucrative US market. BNP Paribas was recently fined over $8 billion and similar fines have been levied against Lloyds and Credit Suisse.
Why are European banks being targeted?
The simple truth is that the US Department of Justice (DoJ) has become more emboldened so more foreign financial institutions are coming under increased scrutiny. A number of critics believe that this is unfair considering that it was the US banks that created the junk bond scenario that set off the recession of 2008.
However, there are a number of reasons why this is currently happening:
- The financial market is now a global one that involves electronic trading and multinational corporations.
- Foreign banks have to be comply with a multitude of financial regulations if they want to do business with US customers.
- European banks are seen to more flexible in international markets.
- It is easier for the US DoJ to file corruption charges against a foreign bank than it is against one of their own.
All financial institutions that work within the US market WILL be investigated by the US DoJ at some point whether they like it or not. There are 27 countries that the US has some sort of trade sanctions against and many of these countries are regular trading partners with Europe. It would be fairly easy for a European bank to inadvertently have financial dealings with a foreign party that had US-led sanctions against it, penalizing the European bank in the process.
How can European banks make sure they are prepared?
We don’t want to go into the plethora of regulations that European banks are subject to as it would simply take too long to list and describe them all.
In any case, the best defense these banks can have against any US DoJ investigations is to be prepared. If a financial institution is knowingly involved in some illicit activity, the best course of action is to know what the activity is and when it happened. Being sorry for actions such as these always carries weight in the US.
Many trails that lead to some form of illegal transaction involve email . It is easier to find an email trail than a paper one. This is where email archiving comes into play. The first step should always be to ensure that email archives are properly maintained and easily searchable, so if the time comes to show evidence to the US DoJ, it can be easily found with the minimum of fuss.
Institutions need to ensure than their email retention and deletion policies are followed ‘to the letter’. The US operates on the basis of ‘innocent until proven guilty’ so an email trail is important. If snippets and pieces of suspected financial irregularities are all that’s available for a query into activities that are well past normal retention schedules, there simply won’t be much of a case.
For banks that have yet to implement an effective mail archiving policy, then an ING case is a real eye-opener. ING had to pay massive fines due to the fact that they could not demonstrate that missing information had indeed been deleted in accordance to US eDiscovery law. ING couldn’t prove that the emails had been deleted so they couldn’t respond to the allegations, leading to hefty financial penalties.