Financial institutions and anti-money laundering violations: who is to bear the burden of liability?

Abstract

Purpose

Money laundering (ML) is one of the greatest challenges, the global community faces today. Corporate entities such as financial institutions (FIs) are most susceptible to facilitate and launder money. The paper raises the following question: Who is to bear the burden of liability? Either a corporation or an individual, thus this paper examines liability issues in a corporate setting particularly financial institutions, which arise from regulatory noncompliance or failure to oversight in the context of ML.

Design/methodology/approach

The study is legal doctrinal mainly based on case laws, legislation and research articles.

Findings

Firstly, this study provides how the concept of liability in a corporate setting in UK and USA has drifted from its traditional “duty to care” standard to a new “duty to oversight” and “Responsible Corporate Officer” concepts resulting a shift in corporate to individual liability. Secondly, in the context of anti-ML violations in FIs, imposition of corporate or personal liability solely may not effectively deter ML and may create conflicts between management and shareholders.

Practical implications

The paper can be a source to explore the issue of ML liability for regulatory noncompliance based on UK, USA and Pakistan law.

Originality/value

This paper demonstrates that the imposition of either corporate or personal liability may create dilemma either for shareholders or management; however, a “combine or collective liability” approach carries potential to retard ML activities in FIs and balancing the harm-penalties incurred upon a corporation while addressing shareholders concerns.

Citation

Korejo, M.S., Rajamanickam, R. and Md. Said, M.H. (2022), "Financial institutions and anti-money laundering violations: who is to bear the burden of liability?", Journal of Money Laundering Control, Vol. 25 No. 3, pp. 671-680. https://doi.org/10.1108/JMLC-07-2021-0071