The UK’s Financial Conduct Authority (FCA) has fined Standard Bank $12.6 million for failings relating to its anti-money laundering (AML) policies and procedures over corporate customers connected to politically exposed persons (PEPs).
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.
“One of the FCA’s objectives is to protect and enhance the integrity of the UK financial system,” said the FCA’s enforcement chief Tracey McDermott. “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.
The FCA said that Standard Bank 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 or 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.
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 settled at an early stage of the investigation and qualified for a 30 percent discount on its fine. Without the discount the fine would have been $18.8 million.