Wine as an investment – the wine merchant’s risk
On 1 April 2013, the Financial Conduct Authority (FCA) replaced some of the functions of the Financial Services Authority. Further information on the role of the FCA can be located here.
On 24 April 2013, the FCA announced that it had fined the EFG Private Bank Ltd (EFG) £4,200,000 for breaches of Principle 3 (management and control) of the FSA’s Principles for Businesses for failures in managing money laundering risks. An early settlement discount of 30% was agreed; without this the fine imposed would have been £6 million.
The breaches were identified following a visit by the then FSA in January 2011 in connection with its thematic review of how banks operating in the UK were managing money laundering risk in higher risk situations.
The FSA reviewed 99 files of EFG’s higher risk customers; 54 related to Politically Exposed Persons (PEPs). 36 files opened between 15 December 2007 and 25 January 2011 were reviewed: 17 contained due diligence documents which identified significant risks of money laundering and 13 of the 17 files contained allegations of criminal activity.
The file reviews identified serious problems, not least a failure by EFG to put into practice their own AML policies. Inadequate enhanced due diligence checks and inadequate enhanced on-going monitoring was also identified by the FSA. No documentation on the files demonstrated the steps taken by EFG to mitigate the risks associated with these accounts or evidenced any on-going monitoring of the customer accounts and relationships. The FSA concluded that these failures meant that ‘EFG was exposed to a heightened risk of handling the proceeds of crime.’ [paras 4.15 and 4.16 of the FSA Final Notice].
When determining seriousness of the breach the FCA took into consideration the three-year period over which the failings had occurred, the fact that the failings were not identified by EFG and EFG’s role as a gateway to the UK banking system. The full co-operation given by EFG and their commitment to improvements to their systems mitigated the sanction imposed.
Tracy McDermott, head of enforcement and financial crime at the FCA, reiterated that ‘the FCA will continue to focus on high risk customers and business’. It is essential that businesses ensure not only that they have strong anti-money laundering and compliance policies but that they are actively and rigorously enforced and implemented. Further penalties can be expected from the FCA for those who fail to implement policies.
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