Key AML fines in 2021
- NatWest - £265m AML fine
- HSBC - £64m AML fine
- MT Global - £23m AML fine
- Azeri PEP - £4m funds surrendered
- Richard Leahy - £2m financial crime settlement
- CLSA Premium - £560k AML fine
There are many causes for these penalties, ranging from a lack of due diligence and poor processes to outright fraud. But one thing is true, if you cannot show a regulator you were trying to prevent money laundering, you can expect a very severe financial penalty.
Key AML fines of 2021 in detail
1. NatWest - £265m AML fine
NatWest received a huge £264.8m fine after being convicted for three separate offences in relation to anti-money laundering failures. This fine marks the FCA's first criminal charges against a firm for AML failures.
According to the sentencing judge, Mrs Justice Cockerill, "although in no way complicit in the money laundering which took place, the bank was functionally vital. Without the bank – and the bank's failures - the money could not be effectively laundered."
Between November 2012 and June 2016, NatWest failed to adequately monitor the activity of a commercial customer, Fowler Oldfield, a jewellery firm in Bradford. NatWest initially assumed it would not handle cash from the Fowler Oldfield firm when it took on the account. However, around £365 million was placed with the bank throughout the customer relationship, with around £264 million in cash.
Some of the bank's workers in charge of handling these cash deposits reported their suspicions to the bank's money-laundering investigators, but they took no action. The reported red flags included depositing large amounts of Scottish banknotes around England, suspicious behaviour when individuals were depositing cash at NatWest branches, and deposits of notes with a strong, musty odour.
Furthermore, the bank's automatic transaction monitoring system misidentified some cash deposits as cheques. Because cheques carry a lower risk of money laundering than cash, the bank's monitoring of many cash depositors, including Fowler Oldfield, was severely lacking.
- Conduct initial and ongoing customer due diligence using a risk-based approach.
- Look out for anything suspicious, paying particular attention to high-risk customers and jurisdictions.
- Report any knowledge or suspicion of money laundering or terrorist financing immediately.
- Exercise extreme care to avoid tipping off anyone who has been reported for money laundering or terrorist financing.
2. HSBC - £64m AML fine
The FCA fined banking giant HSBC£63.9 million for "unacceptable failings" of its AML systems. These failings span over a period from 2010 to 2018. The regulator stated that there was inadequate monitoring of both terrorist scenarios and money laundering until 2014. Furthermore, the bank failed to adequately assess the risk of new scenarios from 2016.
FCA executive director, Mark Steward, stated that "HSBC's transaction monitoring systems were not effective for a prolonged period despite the issue being highlighted on numerous occasions. These failings are unacceptable and exposed the bank and community to avoidable risks, especially as the remediation took such a long time."
The bank has not disputed the charges and agreed to settle, which saw the original fine of £91 million cut down.
- Ensure that there is regular testing and updating of transactions monitoring systems and system parameters.
- Immediately address any risk of money laundering and terror financing - a lack of consideration in this is a beach of AML processes.
- Have adequate measures to assess risk and ensure that these measures are enforced.
3. MT Global - £23m AML fine
MT Global Limited was subjected to the biggest ever HMRC fine for considerable AML breaches between July 2017 and December 2019 relating to:
- fundamental customer Due Diligence measures
- risk assessments and record-keeping
- controls, policies and procedures
This penalty is three times as high as the previous record penalty of £7.8 million handed out by HMRC last year to a London money service bureau.
According to Nick Sharp, Deputy Director of Economic Crime, Fraud Investigation Service, HMRC, "We're here to help businesses protect themselves from those who would prey on their services. That includes taking action against the minority who fail to meet their legal obligations under the regulations as this record fine clearly shows."
- Ensure there are sufficient measures in place to conduct ongoing customer due diligence.
- Be aware of government regulations regarding controls, policies and procedures and be sure to comply with these.
4. Azeri PEP - £4m funds surrendered
A Politically Exposed Person (PEP) has agreed to hand over £4m, sent via the infamous Azerbaijan Laundromat money laundering scheme. London-based Suleyman Javadov has close ties to the ruling powers in Azerbaijan, where his father was formerly the deputy energy minister.
The NCA was permitted to apply for Account Freezing Orders in 2018 and 2019 on ten bank accounts held by Javadov and his wife, which held around £6.4m. The forfeiture of just over £4m from four of Javadov's accounts settles the NCA's claim, and the freezing orders on the other accounts will now be revoked.
Andy Lewis, NCA Head of Asset Denial, said, "This result is a significant success for the UK – £4m for the public purse – following the first case seeking forfeiture of funds relating to the so-called Azerbaijan Laundromat. It follows a challenging and complex NCA investigation lasting more than two years, which resulted in Javadov agreeing to settle rather than face a court battle. Anyone who used the Azerbaijan Laundromat should not rest easy, as your assets in the UK are potentially recoverable."
- All documentation is important and must be readily available for compliance officers upon request.
- Any money transfers need to be accounted for and should be traceable through bank statements.
5. Richard Leahy - £2m AML settlement
London-based property developer, Richard Leahy, is to hand over assets worth almost £2m to settle a civil recovery claim based on alleged involvement in fraud, money laundering, and marijuana cultivation. The order relates to three London properties and over £1.1m in cash in a bank account.
The NCA's case was that the property was the proceeds of criminal conduct. Investigators alleged that Leahy had been involved in criminal activity for over 15 years, including marijuana cultivation, benefit fraud, mortgage fraud, money laundering and tax evasion.
Andy Lewis, Head of civil recovery at the NCA, said, "This is a great result, recovering nearly £2m that will go back into the public purse and be used to help fight criminal activity. Settlements in civil cases offer good value to the taxpayer, avoiding often lengthy and costly legal battles while freeing up our investigators and legal team to pursue other casework."
6. CLSA Premium - £560k AML fine
Multi-national foreign exchange business CLSA Premium has been fined over £560,000 for breaking anti-money laundering regulations.
An investigation by New Zealand's Financial Markets Authority revealed that the Auckland branch of the company bent the rules to safeguard the interests of high-net-worth clients. They failed to carry out know-your-customer procedures and did not terminate business relationships with customers who refused to be transparent with the origin of their funds.
A Judge found that company directors actively hindered compliance managers from doing their job. They noted that the company "was willing to accept inadequate information, including objectively suspicious information", to retain customers' business. The transactions totalled over £36.2m and £30m, respectively, deposits of just two customers.
- Ensure that there are initial and ongoing due diligence measures in place to determine customers that could be involved in fraudulent activity.
- It is essential to keep a record of all transactions with clients to allow compliance managers to follow up on these interactions.
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