In a year marked by damaging money laundering and tax evasion scandals, firms added thousands of employees to units set up to combat financial crime, while cutting in other areas. At Danske Bank A/S, the lender at the center of the biggest scandal, compliance headcount jumped by about 600. ABN Amro Group NV is still looking for 400 more, and Rabobank wants to hire another 250.

The firms are rushing to restore their reputation — and standing with regulators — after revelations of massive money laundering at a tiny outpost of Danske, a raid on the headquarters of Deutsche Bank AG that was tied to the Panama Papers, and a widening tax avoidance scheme in Germany, to name just a few. Deutsche Bank, which was also tied to the Danske case, had just put billion-dollar fines for past misconduct behind it when the new revelations hit its share price and drove yet more clients away.

The past year instilled “a new sense of awareness among banks, supervisors and the general public,” Thorsten Poetzsch, who oversees anti-money laundering efforts at German financial watchdog Bafin, said in a recent interview. “The banks realize that money laundering isn’t just a question of cost but that it can threaten their very existence.”

Higher Headcount

Share of anti-financial crime staff in total headcount has been rising at EU banks

Source: company filings
Note: AFC staff relative to total staff based on available data - 'previously' means 2013 for ABN Amro, 2015 for DB and 2017 for Danske

How banks deal with money-laundering scandals was a hot topic at fourth-quarter earnings presentations. The costs associated with catching up have dented profits across the board, and banks including ABN Amro and Rabobank have said that ongoing recruitment will continue to drive up expenses this year.

European financial regulators are likewise turning up the heat. Having devoted limited resources to the issue in the past, watchdogs including the European Central Bank, Bafin and Dutch Central Bank are urging lenders to do more. Policymakers have said that fragmented regulation in Europe is a problem, demanding that the EU set up a single agency to deal with it.

The banks’ hires are on top of investments in technology to prevent financial crimes. Deutsche Bank has spent 300 million euros on such measures since 2015, its legal head, Karl von Rohr, said recently. Danske is planning to spend about 270 million euros over the next three years, it said earlier this month. Both companies are hoping that technology will help reduce the need for human compliance staff in the long run.

Trouble for the European financial sector began early last year when two Baltic banks were shut down over money-laundering concerns. It spread to the core of Europe in the spring as Denmark’s largest bank was sucked in, and exploded into a full-blown European affair in the fall when several large banks disclosed various money-laundering issues. European regulators have since tightened the grip on the sector.