Do Banks Make Good Moral Decisions?7 min read

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Do Banks Make Good Moral Decisions? It’s an interesting question and one that strongly came to mind the other day when I read a comment from someone on another post about the return on investment (RoI) arising out of doing KYC. I guessed that, by RoI, the commenter was actually interested in whether the value of criminal funds identified compared favourably to the cost of performing the KYC (and all the other associated controls). It’s a topical question as the major banks in the USA are currently (allegedly) in dialogue with the new administration to get some of the AML regulations rolled back. But where do morals sit when measuring RoI? How much overlap should there be in the Venn diagram of what is legally required and what is morally right.

Let’s attack this question from a slightly different angle.

Suppose you were running an off-licence (liquor store) and a young kid, around 15 years old came in and tried to buy a bottle of vodka. You’d refuse, right? Of course you would! It’s a no-brainer.

OK. Now let’s suppose you watched the kid go outside, stop an older person in the street, talk to them and that older person then comes into your shop to buy the self-same bottle of vodka that the kid wanted to buy. You’d still refuse, right?

Almost certainly, I think you’ll answer yes. The sale of alcohol to minors, even when it is by a proxy, is illegal (at least, in the UK it is) so you’d be committing an offence if you did so.

But what if that adult came in the following day and tried to buy the alcohol, would you still refuse? That’s a bit trickier isn’t it? You can’t be certain that the sale is still related to the youngster who wanted to buy it the day before. The chain of evidence has become extremely circumstantial. And you’re losing money if you turn the purchaser away unnecessarily. It’s not going to hurt if you say yes, is it? But, if it is for the child, you know the sale is illegal.

Let’s try a different tack.

Suppose you’re a pharmacist and a highly agitated young person comes in and tries to buy a box of painkillers. Again, I hope you’d say no.

And, as above, if that same person went out and asked someone else to come in and buy them, you’d probably still refuse.

And the next day? This one’s even trickier as, potentially, a life might depend on you making the right decision. Would you take the chance that she was agitated due to some form of suffering and wanted the painkillers to alleviate the symptoms, rather than, as your instinct is telling you, use them to commit suicide? And this time, it isn’t illegal to make the sale. But is it moral?

Moral decisions can be hard to make. And sometimes, inaction might seem an easier way out than action. That way, you feel that you can’t be held accountable if your suspicions turn out to be false.

But wait!

There’s a famous moral dilemma where you are asked to conduct the following thought experiment:

A runaway train is fast approaching and you are next to a set of points. If you do nothing the train will smash into a stationary carriage and kill the five occupants. If you change the points it will move to another track where there is also a stationary carriage but only one occupant. The question is, would you save five lives at the expense of one, knowing that your intervention directly caused that one person to lose their life whereas, had you not been there, the five would still have lost their lives anyway.

Now let me add a further dimension to this dilemma.

Suppose there were three sets of points and three of you, one manning each set. How much easier is it now to choose inaction on the basis that one of the others is bound to do the right thing?

We now have a classic example of the “bystander” effect, a theory that came about following the murder of Kitty Genovese in New York in the early 60s. A recent and very well written article about this can be found on the New York Times website.(

The bystander effect is a very powerful emotion, one that causes people to choose inaction over action to avoid the potential opprobrium arising from being wrong. I wonder how many people at the onset of the credit crunch could see trouble on the horizon but said nothing? Or how many people in firms who have received significant fines for major AML failures over the past few years were aware that all was not well but decided that someone much better placed (or more highly placed) than them would surely raise the issue, and do so with greater effect?

Over the years I’ve worked in banking I’ve found one of the hardest things to do is to reconnect our banking colleagues with the crimes that are committed by the people who either launder the proceeds themselves directly, or more commonly, through professional money launderers, mainly because the link is often circumstantial and there are many other actors in between.

Somehow, as it is “only money” it seems easier to “turn a blind eye” (i.e. take no action) than it would if you had actually observed a crime being perpetrated.

Anyone who has been to one of my workshops will tell you that I work very hard to change those perceptions and I tell a great many stories about the crimes that underpin much of the money which is ultimately laundered through the financial system. Imagine the victim of one of those crimes sitting next to you as you perform your review of the KYC or check a monitoring alert. How much more assiduous would you be?

Human trafficking, forced organ donation, child labour, hard drug manufacturing and peddling  are all dreadful crimes and no one in their right mind would want to aid the perpetrators of these crimes by helping to legitimise the proceeds and yet that’s what we do when we fail to apply our own rules robustly.

And the truth is, it is really hard to change people’s behaviour through an intellectual education of the difference between right and wrong, good or bad, moral or immoral. It is only when we have an emotional connection that we decide to do things differently. People tend to take out life assurance when someone close to them dies. People tend to stop smoking when they find they have emphysema, people tend to go on a diet when they are diagnosed as Type 2 diabetic. It’s the emotions that are the precursors of action.

Training people on the rules and avoiding the reason WHY we have the rules is folly. There was one memorable occasion when I was forbidden from including pictures and statistics of the crimes that contribute towards the money being laundered through the system. When I asked why I was told that the firm didn’t want my training upsetting the participants!

The chances of coming face-to-face with an obvious criminal are slim and even identifying a proxy (i.e. a professional money launderer) is difficult, but that is no reason to shrug and take the money. If we have doubts we must say so.

Ultimately, banks have no corporeal existence of their own and so cannot have morals. Only the people who work in them are capable of making moral decisions and, no matter how good the control framework, if the people responsible for ensuring the controls work don’t apply sound moral judgements to what they do, it is a battle that can never be won and no amount of calculating RoI will make the slightest difference.

Inaction is as much a moral decision as action.

Do Banks Make Good Moral Decisions?

What do you think? Do Banks Make Good Moral Decisions? Let us know in the comment box below.

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