WORLD NEWS TOMORROW – AFRICA CRIME -This is the first AML case the FCA, or its predecessor the Financial Services Authority (FSA), has brought focused on commercial banking activity. This is also the first AML case to use the new penalty regime, which applies to breaches committed from 6 March 2010. Under the new regime larger fines are expected.
Tracey McDermott, director of enforcement and financial crime, said:
“One of the FCA’s objectives is to protect and enhance the integrity of the UK financial system. Banks are in the front line in the fight against money laundering. If they accept business from high risk customers they must have effective systems, controls and practices in place to manage that risk. Standard Bank clearly failed in this respect.”
Standard Bank is the UK subsidiary of Standard Bank Group, South Africa’s largest banking group. Standard Bank Group is an international banking group with extensive operations in 18 African countries and operations in 13 other countries outside of Africa.
Between 15 December 2007 and 20 July 2011, Standard Bank failed to comply with Regulation 20(1) of the Money Laundering Regulations because it failed to take reasonable care to ensure that all aspects of its AML policies were applied appropriately and consistently to its corporate customers connected to PEPs.
As with any financial services activity, commercial banking business can be used to launder money, particularly in the layering or integration stages of the money laundering process. In order to prevent financial crime, banks operating in this sector must have effective AML systems and controls in place ensuring that all the participants in commercial banking transactions are subjected to effective and appropriate due diligence. This is particularly important where the transaction involves PEPs or other high risk customers.
Guidance issued by the Joint Money Laundering Steering Group (JMLSG) provides that where a corporate customer is known to be linked to a PEP, such as through a directorship or shareholding, it is likely that this will put the customer into a higher risk category, and that enhanced due diligence (EDD) measures should therefore be applied. During the relevant period, Standard Bank had business relationships with 5,339 corporate customers of which 282 were linked to one or more PEPs.
The FCA reviewed Standard Bank’s policies and procedures and a sample of 48 corporate customer files, all of which had a connection with one or more PEPs. The results of this review highlighted serious weaknesses in the application of Standard Bank’s AML policies and procedures.
This meant that it did not consistently:
carry out adequate EDD measures before establishing business relationships with corporate customers that had connections with PEPs; and
conduct the appropriate level of ongoing monitoring for existing business relationships by keeping customer due diligence up to date.
The FCA considers these failings to be particularly serious because:
Standard Bank provided loans and other services to a significant number of corporate customers who emanated from or operated in jurisdictions which have been identified by industry recognised sources as posing a higher risk of money- laundering;
Standard Bank identified issues relating to its ability to conduct ongoing reviews of customer files early in the relevant period, but failed to take the necessary steps to resolve the issues; and
the FCA has previously brought action against a number of firms for AML deficiencies and has stressed to the industry the importance of compliance with AML requirements.
The weaknesses in Standard Bank’s AML systems and controls resulted in an unacceptable risk of Standard Bank being used to launder the proceeds of crime.
Standard Bank and its senior management have co-operated with the FCA investigation and have taken significant steps at significant cost towards remediating the issues identified, including seeking advice and assistance from external consultants.
Standard Bank settled at an early stage of the investigation and qualified for a 30% discount on its fine. Without the discount the fine would have been £10.9 million.
Notes for editors
The Decision Notice for Standard Bank.
On 22 June 2011, the FSA published its findings from a thematic review, which focused on how banks manage money laundering risk in higher risk situations. The FSA published a Policy Statement PS11/15 Financial crime: a guide for firms on 9 December 2011. This contains guidance on steps firms can take to reduce their financial crime risk, including in their dealings with high risk and PEP customers.
PEP means Politically Exposed Person. A PEP is defined in the ML Regulations as ‘an individual who is or has, at any time in the preceding year, been entrusted with a prominent public function’ and an immediate family member, or a known close associate, of such a person. The definition only applies to those holding such a position in a state outside the UK, or in a European Community institution or an international body.
On the 1 April 2013 the Financial Conduct Authority (FCA) became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
Find out more information about the FCA.
The AML UNIT – (Anti Money Laundering Unit) has asked for further investigation into Standard Bank South Africa.