Piles of Dirty Money Have Europe’s Banks Racing to Keep Up

Reeling from a litany of scandals and more than $20 billion in fines since 2012, lenders are using artificial intelligence and machine learning to ferret out miscreants seeking to obscure the origin of ill-gotten cash. But that technology coughs up so much data that banks must hire legions of workers to sort through it all and separate the scoundrels from the scrupulous.

Compliance and financial crime personnel today account for about 3% of the average bank’s head count in the U.S. and Europe, more than double the level in 2013, according to Boston Consulting Group. With most lenders now thoroughly evaluating business clients annually instead of every three to five years, as they did a few years ago, big banks typically spend more than $300 million annually staffing their anti-money-laundering operations, BCG says. Investment bank Mediobanca SpA estimates European financial houses will have to hire 10,000 people in the next two years, but there aren’t nearly enough qualified candidates. “There’s an ongoing labor crunch,” says BCG partner Norbert Gittfried. “The day-to-day need is still going up.”

With low interest rates and a weak regional economy squeezing profits, bulking up is tough, but banks have little choice. In January new European Union anti-money-laundering regulations will come into effect, tightening rules and expanding the range of activities that must be examined. Danske Bank AS, which says as much as $220 billion in suspicious transactions moved through its Estonian branch, needs 600 people to staff its crime and compliance units. ING Groep NV, which in 2018 paid a €775 million ($860 million) penalty to settle money laundering cases, in the second quarter of this year created 500 full-time positions to monitor suspicious transactions—a 20% rise. France’s biggest lender, BNP Paribas SA, has increased its compliance and anti-financial-crime head count by 40%, to 4,200, over the past three years.

Several lenders have farmed out lower-level jobs in the field to Eastern Europe. Others are holding “date nights,” where compliance executives meet with potential hires, seeking to spiff up the image of what’s long been viewed as a fusty backwater of the finance industry. Rabobank Group, which has agreed to pay $369 million to end a U.S. investigation of money laundering for Mexican drug cartels, has opened 21 compliance hubs across the Netherlands to attract workers reluctant to move to bigger cities. Deutsche Bank, the troubled lender that plans to cut 18,000 jobs by 2022, has vowed it won’t “make any sacrifices” in crime fighting and expects to spend €4 billion to beef up its compliance capabilities in the next three years. Across Europe, salaries for compliance officers have climbed 20% since 2016, far outpacing raises in the rest of the banking business, according to recruiter Korn Ferry.

Although it would be impossible for banks to comply with money laundering regulations without software, the tools can flood them with thousands of “false positives.” Loosening the algorithms could reduce that problem, but that would likely also let some bad guys squeak through—exposing banks to the risk of massive penalties. Moreover, criminals are constantly coming up with ways to hide the provenance of their cash, often using elaborate webs of offshore companies or rapidly moving money around the world using digital payment transfers and cryptocurrencies. Computers can spot suspicious activity, but they’re typically not smart enough to unravel precisely what’s going on with a client or a transaction.

That’s why banks need people such as Carolien Al-sabbag. The 29-year-old analyst was hired last year by Rabobank’s compliance center in Zeist, a town of 63,000 about 45 minutes south of Amsterdam by car. On a recent afternoon, she got a notice that a client with a sizable real estate portfolio had made a series of cash deposits in excess of €10,000, and the source of the funds was unclear. After a quick Google search, Al-sabbag discovered that police had found an illegal pot farm on one of the customer’s properties. She called the man’s accountant, who said the client owns a restaurant (which she verified with the Dutch Chamber of Commerce) and that the money was legitimate revenue from there. She passed her findings on to a supervisor, who would decide whether to report the suspicious activity to police. “People aren’t always happy when we scrutinize them, but with so many dirty-money scandals, they’re starting to understand it more,” she says.

Still, simply hiring a bunch of recruits isn’t sufficient, says Charles Delingpole, chief executive officer of ComplyAdvantage, a London startup that provides anti-money-laundering software to more than 400 clients including Banco Santander’s U.K. division and Earthport, a payments processor owned by Visa. Lenders are being asked to keep closer tabs on accounts even as apps let customers do everything from currency trading to taking out mortgages with just a few taps on their smartphone. And every time a bank stops a transaction or investigates a client, the business can go elsewhere.

Delingpole says striking a balance is a serious challenge requiring a new mindset across the entire organization, not just more people and software. “It’s much easier to throw bodies at the problem than it is to rewire financial infrastructure,” says the tech veteran of JPMorgan Chase & Co. “But money launderers are tremendously innovative, and the range of regulatory demands and the severity of penalties for transgressions continue to increase.”

©2019 Bloomberg L.P.