The US banking sector in the 21st century: Exploratory research on the drivers and implications of the financial penalties for violations against anti-money laundering regulation by banking institutions

Abstract

This study examines which variables most likely influence the sizes of penalty amounts imposed on banks within the U.S. financial sector for violations of anti-money laundering regulations. The study also explores potential issues related to the current anti-money laundering regulatory approach.

Although the importance of understanding how the severity of enforcement actions is determined has been recognized, not much previous research on anti-money laundering penalty amounts exists. On top of anti-money laundering literature, we draw upon scientific literature from relevant adjacent fields such as research on SOX 404 internal controls and research on cost-benefit effectiveness of financial regulations.

The study is qualitative in nature and applies quantitative methods to support the descriptive analysis. The quantitative method used in this study is simple linear regression and it is used to illustrate the effects of selected variables to the issued penalty amounts. The sample was hand-collected and composed from multiple sources and consists of 61 penalized cases for anti-money laundering deficiencies in the U.S. banking sector in 2001-2022.

The results suggest that penalty amounts imposed on banks for violations of anti-money laundering regulations are most likely influenced by bank size, nationality of the bank, political influence, and the types of internal control material weaknesses related to the violation. Additionally, the results suggest that the source of material weakness disclosures likely does not influence penalty amounts, which we highlight as a potential issue related to the current regulatory approach