The FSA’s anti-money laundering thematic review, published yesterday, focussed on how banks manage high risk customers, including politically exposed people (PEP), correspondent banking relationships and wire transfer payments.
It visited more than 27 banks between early 2010 and February 2011, including major banks, small and medium-sized banks and several banks’ overseas centres.
The report found that some banks appeared unwilling to turn away, or exit, very profitable business relationships, including PEPs, where there appeared to be an unacceptable level of risk of handling the proceeds of crime.
Despite changes in the legal and regulatory framework, a number of the weaknesses identified during this review were the same as, or similar to, those identified in the FSA’s report ten years ago covering how banks in the UK handled accounts linked to the former Nigerian military leader General Sani Abacha.
The regulator stated that it had "serious concerns" about the findings and had referred two banks to enforcement following the identification of apparent serious weaknesses in their systems and controls for managing high risk customers including PEPs.
In one case study, published in an anonymised form, the FSA described a relationship approved in principle by the money laundering reporting officer (MLRO) of the private banking arm of a major banking group in 2010.
Details from the review showed that the reporting officer of the private bank was aware of a prospective customers’ status but still advocated forming a relationship because it could be profitable for the bank.
An account opening form included in a statement from the reporting officer said: “We understand they are considered PEPs due to family ties, however I believe the bank can do good business with [these customers] and could generate further business in relatively untapped areas.”
The MLRO then went on to approve the relationship without verifying either the customers’ identity or obtaining details on the source of their wealth.
An intelligence report on file detailed allegations that a relative of the customer had embezzled millions of dollars in state funds and had been charged with evading millions of dollars in tax. In addition, the customer’s family was known to have close links to a former head of state.
An email from a member of the AML team stated: “In my view, provided there is sufficient business to justify the risk, then I am happy to recommend we proceed.” The prospective customers, however, decided not to open an account with the bank after all.
The regulator concluded that serious weaknesses had been identified in banks’ systems and controls as well as indications that some banks were willing to enter into very high-risk business relationships without adequate controls when there are potentially large profits to be made. It said: "It is likely that some banks are handling the proceeds of corruption or other financial crime."
