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Impact on the firm value of financial institutions from penalties for violating anti-money laundering and economic sanctions regulations

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  • Gowin, Kathleen Donnelly
  • Wang, Daphne
  • Jory, Surendranath Rakesh
  • Houmes, Robert
  • Ngo, Thanh

Abstract

This study examines the valuation effects of anti-money laundering (AML) enforcement actions and the Office of Foreign Assets Control (OFAC) economic sanction violations on U.S. financial institutions (FIs). Using a hand-collected sample of 308 enforcement actions issued between 2000 to 2018, results show that a civil money penalty (CMP) adversely affects a bank's value in the next quarter. Neither the magnitude, nor the type of AML-OFAC violation, and neither the bank's ability to deal with an enforcement action― as proxied for by efficiency ratios and governance mechanisms―are able to moderate the adverse effect of the CMP.

Suggested Citation

  • Gowin, Kathleen Donnelly & Wang, Daphne & Jory, Surendranath Rakesh & Houmes, Robert & Ngo, Thanh, 2021. "Impact on the firm value of financial institutions from penalties for violating anti-money laundering and economic sanctions regulations," Finance Research Letters, Elsevier, vol. 40(C).
    • Handle: RePEc:eee:finlet:v:40:y:2021:i:c:s1544612320301550
    DOI: 10.1016/j.frl.2020.101675
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    Cited by:

    1. Yuanhong Hu & Sheng Sun & Yixin Dai, 2021. "Environmental regulation, green innovation, and international competitiveness of manufacturing enterprises in China: From the perspective of heterogeneous regulatory tools," PLOS ONE, Public Library of Science, vol. 16(3), pages 1-28, March.
    2. Del Gaudio, Belinda L. & Salerno, Dario & Sampagnaro, Gabriele & Verdoliva, Vincenzo, 2022. "Misconduct risk in banking services: Does a propensity to be sanctioned exist?," International Review of Financial Analysis, Elsevier, vol. 81(C).
    3. Zhang, Guike & Gao, Zengan & Dong, June & Mei, Dexiang, 2023. "Machine learning approaches for constructing the national anti-money laundering index," Finance Research Letters, Elsevier, vol. 52(C).

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    More about this item

    Keywords

    Anti-money laundering (AML); Office of foreign assets control (OFAC); Economic sanction regulations; Civil money penalty (CMP); Financial institutions;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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