Foreign banks face higher financial crime risks in the U.S. due to tougher anti–money laundering (AML) rules, says Fitch Ratings.
In a new report, the rating agency said that significant changes to U.S. AML rules expand the scope of potential investigations and increase the penalties, raising the risks to non-U.S. banks.
Fitch said that new legislation gives the U.S. Department of Justice and the U.S. Treasury substantial new powers to subpoena customer records stored outside the U.S. It also protects the U.S agencies’ subpoena power from conflicts with foreign privacy rules.
“Non-U.S. banks may see increased use of subpoenas relating to AML, sanctions, foreign corrupt practices, trafficking and tax evasion offences,” it said.
Foreign banks also face civil penalties of up to US$50,000 per day for failing to comply with U.S. subpoenas, and the penalties for AML violations have been increased.
While monetary penalties aren’t likely to directly result in credit downgrades, “they can trigger reputational damage and signal failings with a bank’s governance and risk management frameworks,” Fitch noted.
Policy-makers, consumers and investors “are also increasingly conscious of the social impact of the institutions they do business with and are less tolerant of transgressions that can lead to ratings actions,” it said.
The new rules “signal the U.S.’s intention to maintain a muscular approach to extraterritorial financial crime enforcement and rule setting, with North American banks facing steep fines for governance failings,” Fitch said.
Other countries are also expanding their efforts at cross-border coordination, it noted, given the interconnectedness of financial systems and cross-border banking networks.
“Lower tolerance of governance failures from a wide range of stakeholders reinforces Fitch’s view that governance and financial crimes risks, along with associated penalties and indirect business costs, are becoming more punitive for banks globally,” Fitch said.