Illegal trading – will the top of ABN Amro go free?

August 15, 2021 by No Comments

You will be told it as an international bank, in which the government owns 56 percent of the shares. “The Public Prosecution Service qualifies the observed behavior as illegal acts carried out by a legal company within its normal business operations.”

ABN Amro failed to take adequate measures against money laundering transactions for years. The bank knew its customers insufficiently: a mortal sin for business. By looking away, the bank enabled individuals and companies to carry out criminal transactions on a “large scale” via ABN Amro accounts. A criminal mortal sin.

As it turned out last week, this will cost ABN Amro 300 million euros as a settlement in a criminal investigation, plus another 180 million euros in fine. The latter is an estimate of the extra profit the bank made by saving control costs.

The quote about illegal acts is in the statement of facts that the Public Prosecution Service made public last Monday. The Public Prosecution Service reached the same conclusion three years ago in a similar settlement with ING. That was about 775 million in total.

But at ING, the suspicion focused on the company, on the legal person. Not on drivers. At ABN Amro, the judiciary is investigating former directors: Gerrit Zalm, Joop Wijn and Chris Vogelzang.

What was wrong? Was it powerlessness? unwillingness? Or ignorance?

Powerlessness?

Banks are digital financial factories. But everything revolves, very old-fashioned, about trust. Your money and your data must be safe. ABN Amro, for example, has 5 million account holders, who together carry out 1 billion transactions per year. That is colossal and complex. It’s great that you can automate that to a great extent. But behind the facade, the impotence begins.

Know your customer is the basic rule. A bank that doesn’t know its customers can give them too much credit, with all the risk of losing money. It is a form of financial self-preservation. But it is now also a mandatory social obligation. Banking customers can use accounts for money laundering, fraud and other criminal behaviour. That is extra dangerous for Dutch banks. The Netherlands is a marketplace of drug trafficking and has a multifaceted sector of trust companies behind which nefarious businessmen can hide.

The legislator has therefore appointed the banks as gatekeepers: to recognize suspicious transactions via their payment systems, and to take measures.

And that’s where the powerlessness comes in. ABN Amro had a “fragmented IT landscape”, concludes the Public Prosecution Service. Sometimes it was done manually. The systems were organized in a decentralized manner. This created separate silos within the bank that did not know each other’s data and assessments.

The fragmentation was a legacy of the nationalization in 2008 and the merger of ABN Amro with Fortis Nederland. Then a critical decision was made to neutralize risk for all 5.5 million retail and small business customers. After that, barring serious incidents, it was no longer looked after. Given the gatekeeper’s role, it should have been.

Another choice that is now costing the bank money: how much manpower is available to review suspicious transaction reports? ABN Amro did receive reports, but had too few people, so that backlogs arose and suspicions were reported too late. ING had just the opposite: the system was set up in such a way that it only gave three reports a day.

unwillingness?

Controlling customer transactions costs a lot of money. But banks are just businesses. They don’t want to scare customers away, but they want to help, and thus make money.

Especially if, like ABN Amro, they are preparing an IPO from 2013 onwards. The government wanted to sell part of its shares, ABN Amro had to be an attractive investment. When that was successfully concluded in 2015, investors had to remain satisfied, with good profits.

Subsequently, in 2016/2017, a governance crisis broke out, which The Financial Times lay on the street. The top was replaced, the executive echelons shrunk below and the chief executive departed as well.

Was this instability the reason that the top of the bank half-heartedly followed up or ignored the results of investigations by De Nederlandsche Bank (DNB) and its own internal accountants and lawyers?

The internal culture at the bank was that-we-will-solve-later, according to the judiciary

The report of the facts of the Public Prosecution Service lists complaints and admonitions, but it did not make any progress with measures. Money did not play a role in the checks on paper, but a separate budget had to be requested each time. Justice suggests that the internal culture played tricks on the bank. A we’ll fix that later attitude.

Ignorance?

Gerrit Zalm, former Minister of Finance (VVD), has not been chairman of ABN Amro for very long when he hosts a dinner for supervisory directors. Ivo Bökkerink and Pieter Couwenbergh sketch in their book The State Bank the next scene. One of the commissioners asks Zalm: how does running a bank differ from being a minister. “The latter is much, much more complicated,” says Zalm without hesitation. The supervisory directors think: does this man not pose a business risk?

Last week, you could say, that risk manifested itself, especially for the three former directors.

Compare the facts about ING with that about ABN Amro and you will see the differences. At ING, the judiciary did not want to prosecute people. The bank had “lacked a culture in which problems were escalated upwards in the organization.” This did happen at ABN, but it was precisely at the top that ‘there was a culture in which things were sometimes presented more beautifully’.

Political and social criticism followed ING’s settlement: the bank had been dealt with, but not the responsible directors. How different is that now. If you search the ABN Amro fact sheet for the term ‘board’ as executives, you will get sixteen hits. At ING? Zero.

At ABN Amro, people are also looked at. This is partly due to the aftermath of the ING case. After a lawsuit from research agency SOBI, the Court of Appeal in The Hague saw enough leads to prosecute the then ING CEO Ralph Hamers.

At least two of those starting points are now also relevant at ABN Amro. As a director, you do not have to be informed in detail about the failure of your own organization in order to bear responsibility. The judge pointed to inspection reports from the ECB and DNB and to alarming internal messages to Hamers.

The ABN Amro case is teeming with external investigations, internal reports and questions from the supervisory directors.

The second point of departure is Hamers’ defense last year that he did not have to leave the ECB, despite the settlement. While the ECB really wouldn’t let someone who had led criminal offenses sit down.

That immediately turned out differently for two of the former ABN AMRO staff last week. Vogelzang and Zalm left Danske Bank as chairman and supervisory director respectively. Hamers exonerated himself with an appeal to the ECB. The judge did not agree. Zalm and Vogelzang don’t even try anymore.