This week corporate fraud and malfeasance has taken on the spotlight in our Safeguard ESG impact tracker with the “Ethics and Anti-Corruption” event type showing a 237% increase from the previous month. Deutsche Bank and J.P. Morgan are implicated in a money laundering story along with HSBC. We take a deeper look at these events and their impact on fundamentals in the Finance sector.

Sam Leavitt
September 23, 2020

ESG Spotlight: Banks Taken to the Cleaners Over Laundering Scandal

ESG Spotlight: Banks Taken to the Cleaners Over Laundering Scandal

In wake of our recent Bank of America piece that highlighted the positive developments in the banking industry, we once again see the darker side of finance as Deutsche Bank and J.P. Morgan have been implicated in a money laundering scandal brought to light by the International Consortium of Investigative Journalists (FinCen Files).

The allegations are based on confidential suspicious activity reports or SARs that are meant to alert regulators of bank transactions that seem unlawful. The files show $2 Trillion dollars in funds moved for foreign oligarchs from Venezuela and Russia, drug cartels, and even terrorist groups spanning a period of 18 years. HSBC and Barclays were also named in these files.

Investors Punish Implicated Banks

While portions of the blame certainly lie with a broken regulatory system that has failed to prevent these actions, investors are increasingly putting the blame squarely on the shoulders of the financial institutions that looked the other way. In this latest scandal, shareholders have responded swiftly and decisively to this news. On Monday the 21st when news broke, J.P. Morgan Chase finished down 3% and Deutsche Bank shares plummeted 8.25%. HSBC fell 5.5%.

Safeguard ESG Impact Tracker: Financial Sector Sentiment and Mentions, Last 7 Days

Uncovering a Pattern of Issues

This latest scandal did not come out of thin air. We went into our Safeguard ESG impact tracker to analyze these companies in depth and found a track record of “Ethics and Anti-Corruption” issues flagged in the past:

  • J.P. Morgan in 2014 was fined $2.6 billion for their involvement in the Bernie Madoff money laundering scandal
  • Deutsche Bank was fined in 2015 for doing business in countries that had sanctions imposed on them by the United States and again in 2017 for laundering money from Russia
  • Deutsche Bank was charged in July with negligence in regards to Jeffrey Epstein’s activities 

While this week’s featured story is certainly not as positive as our note last week, the growing investor focus on these issues will hopefully align incentives moving forward with good governance.

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About Amenity

Amenity Analytics is the industry leader in providing insights from unstructured text by using Natural Language Processing (NLP) assisted by Artificial Intelligence (AI) and Machine Learning (ML). Amenity’s NLP system is a sector-agnostic, language-dependent tool for quantitative text analysis that is deployed across the financial services industry and beyond.

This communication does not represent investment advice. Transcript text provided by FACTSET and S&P Global Market Intelligence.

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