PRIVATE banks managing the financial affairs of the world's wealthy face spending millions of dollars every year on vetting new clients, as regulators get tough on banks that harbor tax cheats and money launderers.

While the world's rich are getting wealthier and putting more money into private banks, a growing proportion of the cash is from geopolitical trouble spots in the Middle East and Asia. That is leading the banks, mostly based in Europe and the US, to spend hundreds of hours on costly checks aimed at meeting regulators' demands to root out bad clients, eating into their profit margins.

Paul Kearney, head of Kleinwort Benson's private investment office, said his team incurs between 5,000 pounds (US$7,600) and 25,000 pounds of costs in vetting each new client, depending on the background intelligence required and the jurisdiction in which the research is undertaken.

"Currently the international client base is the faster growing so we would expect our costs to increase in the next 12-24 months," he said, adding costs could equate to up to 10 percent of the first year's earnings from that account.

Some in the industry question whether all the effort will make much difference. A London-based lawyer specializing in super-rich clients, whose firm rejected a client who turned out to be selling restored Soviet military hardware in the Middle East, said sophisticated criminals will be hard to identify.

"If someone wants to get through the process and they are an inappropriate person, they will almost certainly have the necessary documentation and a front to get themselves through," he said, speaking on condition of anonymity.

But with regulators cracking down on banks, and plans to prosecute individuals as well as their employers currently being discussed in some countries, more money managers feel they have to invest some of their profits in trying to reduce their risks.

"It is expensive, that is true, but you cannot think of it as it once was, because you cannot go back in time," said George King, head of portfolio strategy at Royal Bank of Canada's private banking arm, of the tougher vetting process.

"The burden for not doing it well or incorrectly, in terms of reputational risk or fines is both enormous and growing."

Top banks, including HSBC, have paid huge fines to United States lawmakers to make amends for unwittingly laundering Mexican drug money, while Britain's Financial Conduct Authority has fined three banks for lax money laundering controls since its crackdown gathered pace in 2012.

The vetting costs come on top of rising administrative and regulatory expenses that have already made the competitive business of wealth management much less lucrative for banks.