Examples of Regulatory Fines
At Sentinel, we believe that effective compliance and GRC are a combination of robust systems, experienced professional resources and defined policies and procedures to control customer onboarding and monitoring.
Sentinel Consultants deliver a comprehensive range of services on a variety of topics including:
- AML
- CDD
- KYC Screening
- Biometric Identity verification (worldwide)
- Risk Management
- Internet Investigations
- Enhanced Due Diligence
Monetary penalties for financial sanctions breaches The Policing and Crime Act 2017 (the “2017 Act’) contains powers for HM Treasury to impose monetary penalties for breaches of financial sanctions. The Sanctions and Anti-Money Laundering Act (2018) (“SAMLA”) amended the 2017 Act. Those amendments ensured the majority of provisions in regulations made under SAMLA fall within the 2017 Act definition of ‘Financial sanctions legislation’, which in turn ensures that where there has been a breach of those provisions a monetary penalty under the 2017 Act can be applied.
Commerzbank hit with £37m fine for due diligence failures related to Politically Exposed Persons
July 06, 2020 by Mark Dunn
Commerzbank has been fined £37 million by the UK’s Financial Conduct Authority (FCA) for due diligence failures including inadequate consideration of the risks of Politically Exposed Persons (PEPs).
In June, the FCA fined the London branch of German bank Commerzbank £37 million for not having adequate Anti-Money Laundering controls in place. It had overdue due diligence checks on more than 1,700 clients and failed to add 1,110 high-risk clients and 40 high-risk countries to its automated due diligence tool. It also failed to adequately consider the risks of PEPs.
https://www.reuters.com/article/us-hsbc-probe-idUSBRE8BA05M20121211
(Reuters) – HSBC Holdings Plc agreed to pay a record $1.92 billion in fines to U.S. authorities for allowing itself to be used to launder a river of drug money flowing out of Mexico and other banking lapses.
Mexico’s Sinaloa cartel and Colombia’s Norte del Valle cartel between them laundered $881 million through HSBC and a Mexican unit, the U.S. Justice Department said on Tuesday.
In a deferred prosecution agreement with the Justice Department, the bank acknowledged it failed to maintain an effective program against money laundering and failed to conduct basic due diligence on some of its account holders.
OFAC announces settlement with TD Bank
https://www.sullcrom.com/blogs-ofac-announces-settlement-with-td-bank
On January 13, 2017, OFAC announced a $516,105 settlement with TD Bank for 167 apparent violations of the Cuban Assets Control Regulations (CACR) and Iranian Transactions and Sanctions Regulations (ITSR). According to the announcement, beginning in 2003 or 2004, TD Bank’s Global Trade Finance business, based in Canada, engaged in a series of trade finance transactions that generally involved import-export letters of credit for TD Bank’s Canadian customers. OFAC found that the bank failed to adequately screen these transactions for potential OFAC violations. Consequently, TD Bank maintained several accounts for and processed transactions to or through the United States on behalf of a Canadian company owned by a Cuban company. TD Bank had reason to know of the customer’s connections to Cuba, as well as actual knowledge by several employees and business lines. OFAC also concluded that TD Bank had several accounts in Canada and processed transactions for a “freight, cargo, and shipping business” that was a sales agent for an entity on the SDN list located in Iran. OFAC determined that TD Bank voluntarily self-disclosed the apparent violations and that the apparent violations constitute a non-egregious case. In addition, OFAC issued a Finding of a Violation to TD Bank for its subsidiaries’, Internaxx Bank SA and TD Waterhouse Investment Services Ltd. (TDWIS), violations of the CACR and ITSR. From August 2007 to November 2013, Internaxx and TDWIS processed 3,491 securities-related transactions to, through, or within the United States that were for or on behalf of persons ordinarily resident and located in Iran or Cuba.
Barclays record FCA fine highlights need for third party due-diligence
October 01, 2019 by Mark Dunn
The recent news of Barclays £72 million fine for failing to conduct the appropriate checks on Politically Exposed Persons (PEPs) is a blunt reminder that organisations must make sure due diligence processes are followed by all employees. FCA fines of this nature could well be the first of many. As we noted in our blog – Services regulator increases focus on financial crime – earlier in March, ‘… the FCA has a new risk focus for this year – examining the systems that businesses have in place to tackle financial crime. The FCA has elevated this due to the increased potential for financial crime to have a negative impact on their objectives (to promote and enhance the integrity of the UK financial system).’
The FCA has signaled even greater scrutiny to be put on banks’ financial crime prevention controls. In the last two years the FCA has increased the number of firms it regulates from around 26,000 to over 70,000, therefore more and more firms will come under scrutiny.
How can regulated organisations ensure they don’t fall foul of the FCA?
Firms that fail to place adequate emphasis on implementing necessary systems and controls are more vulnerable to the risk of fines. Organisations must meet certain day-to-day responsibilities, especially if they are subject to Money Laundering Regulations. These responsibilities include carrying out ‘customer due diligence‘ to check that customers are who they say they are.
Performing sanction, PEP and watchlist verification
Keeping up with the pace of change around the world isn’t easy. In order to mitigate compliance risks, you need to stay up to date with what’s happening across scattered information sources including:
- U.N. Security Council Sanctions Committees
- The European Union’s Common Foreign and Security Policy (CFSP)
- The U.K. HM Treasury
- Politically Exposed Persons (PEPs)
Organisations face increased pressure to comply with myriad regulatory requirements. Managing compliance internally is challenging enough, but how do you meet the demands of global compliance when it comes to engaging with third parties? Tracking this much data manually is time-consuming—and you risk missing important information. Without a doubt, technology has made it easier than ever to conduct business globally. But it’s not enough just to have a process – it is important to make sure adequate internal controls and monitoring systems are also in place to prevent and report any suspicious activity.
The FCA engage with the Serious Fraud Office, the National Crime Agency, the City of London Police amongst other enforcement agencies to take action against firms that commit financial crime. With the Fourth Money Laundering Directive now in effect, conducting PEP checks has been extended to include not just international but also domestic PEPs.
Alongside tougher criminal sanctions targeted at corporate and senior management misconduct, it seems that there will be an increase in criminal prosecutions within the financial services industry. Given the FCA’s track record, this could mean more fines for lax controls in management. They will continue to take action against firms that fail to implement the necessary systems and controls to prevent financial crime, but hold senior management to account for failure to prevent it. Firms should act now to analyse any gaps in compliance and take appropriate corrective action
Lawyer Fined For Failing To Identify Panama Paper Clients’ PEP Status
Martin Parrin January 21, 2019
A London lawyer, whose clients were linked to the Panama Paper scandal, has been fined by the Solicitors Disciplinary Tribunal (SDT).
Khalid Mohammed Sharif, partner at Westminster private client firm, Child & Child, was fined £45,000 for failing to carry out adequate due diligence on wealthy foreign clients that were politically exposed persons (PEPs). Additionally, Sharif was ordered to pay costs totalling £40,000.
The tribunal representative claimed that Sharif “failed to take any or any adequate steps to ascertain from publicly available information” and that the fine was an “appropriate and proportionate sanction in all the circumstances.”
FCA fines Gatehouse Bank £1.5m for poor anti-money laundering checks
The Financial Conduct Authority (FCA) has fined Gatehouse Bank Plc £1,584,100 for significant weakness in its financial crime systems and controls.
Between June 2014 and July 2017 Gatehouse failed to conduct sufficient checks on its customers based in countries with a higher risk of money laundering and terrorist financing. Gatehouse also failed to undertake the correct checks when some of the customers were classed as Politically Exposed Persons (PEPs).
Coutts & Co AG Fined SG$1.3m for Failing to Identify PEPs By JX · 29 APR 2017
Read more at: https://aml-cft.net/coutts-fined-hk/
Hong Kong Monetary Authority (HKMA) has fined Coutts & Co AG, Hong Kong Branch, HK$7 million (SG$1.3 million) for contravening provisions in the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance. This is a result of an investigation conducted by the HKMA between April 2012 and June 2015. In December 2016, Coutts was fined by the Monetary Authority of Singapore (MAS) for breaching anti-money laundering regulations linked to the 1MDB transactions. HKMA Investigation Results on Coutts
The results of the investigation revealed that Coutts has failed to identify politically exposed persons (PEPs) as well as delays in procedures to obtain senior management approval to continue business relations with a customer who were identified as PEPs after onboarding. According to FATF, customers who are identified as PEPs before or during the course of the business relationship must be subjected to the approval of the Financial Institution’s (FI’s) senior management. PEPs are classified as higher risk customers as their positions in prominent public functions makes them vulnerable to corruption.
Read more at: https://aml-cft.net/coutts-fined-hk/
Fig. 1: Example of a Typical Enabler Network of a Russian Ultra High Network Individual (UHNWI) or Politically Exposed Person (PEP) (“Group A Individual”)
https://www.jerseyfsc.org/industry/international-co-operation/sanctions/case-studies/
Jersey Financial Services Commission
Below are brief case studies of the international sanctions breaches and the penalties imposed for non-compliance.
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Case studies
The breach of sanctions carries high reputational risks for jurisdictions. As a result, greater scrutiny has been placed on compliance with sanctions legislation in recent years. Below are brief case studies of the international sanctions breaches and the penalties imposed for non-compliance.
All current OFSI enforcement cases are available on GOV UK website.
Case study 1: Standard Chartered Bank – 2019
In April 2019, the London-based Standard Chartered Bank (SCB) has been ordered to pay $1.1bn by the US and UK authorities to settle allegations of poor money-laundering controls and for significant violations of US sanctions laws and regulations.
Department of Justice statement
Case study 2: British Arab Commercial Bank Plc – 2019
In September 2019, a London-based British Arab Commercial Bank plc (BACB), a commercial bank with no offices, business or presence under U.S jurisdiction, entered into $4,000,000 settlement agreement with OFAC for processing 72 apparent violations of the US Sudanese Sanctions Regulations totalling $190,700,000.
Case study 3: Telia Carrier UK Limited – 2019
In September 2019, OFSI issued a penalty notice of £146,341 to Telia Carrier UK Limited (Telia) for breaches of EU Syria sanctions regime, implemented in UK by the Syria (European Union Financial Sanctions) Regulations 2012. Telia had indirectly facilitated international telephone calls to SyriaTel, an entity designated under the above regime. This resulted in the company repeatedly making funds and economic resources indirectly available to the designated entity over an extended period of time.
Case study 4: Travelex (UK) Ltd – 2019
In March 2019, the OFSI issued a monetary penalty against Travelex (UK) for a contravention of the EU Egypt financial sanctions regime.
Case study 5: Raphaels Bank – 2019
In January 2019, the OFSI issued a monetary penalty against Raphaels Bank for a contravention of regulation 3 of the Egypt (Asset-Freezing) Regulations 2011.
Case study 6: UniCredit Bank AG -2019
UniCredit Bank AG, a financial institution headquartered in München, Germany and a subsidiary of the UniCredit Group, has agreed with OFAC to a settlement amount of $553,380,759 to settle its potential civil liability for 2,158 apparent violations of primarily the US Weapons of Mass Destruction Proliferators Sanctions Regulations.
Case study 7: Zhongxing Telecommunications Equipment Corporation -2019
Zhongxing Telecommunications Equipment Corporation, a telecommunications corporation established in the People’s Republic of China, and its subsidiaries and affiliates, as well as ZTE Kangxun Telecommunications Ltd. and its subsidiaries and affiliates (ZTE) have agreed to settle their potential civil liability for 251 apparent violations of the Iranian sanctions regime in the amount of $100,871,266.
Case study 8: Royal Bank of Scotland Group -2016
In August 2010, the Financial Services Authority (FSA) has fined members of the Royal Bank of Scotland Group (RBSG) £5.6m for failing to have adequate systems and controls in place to prevent breaches of UK financial sanctions. RBSG failed to adequately screen their customers and payments against the Consolidated List.
Case study 9: Barclays Plc -2016
In 2016, Barclays Bank Plc (Barclays), a financial institution headquartered in London, has agreed to remit $2,485,890 to settle with OFAC regarding its potential civil liability for 159 apparent violations of the US Zimbabwe sanctions regime, failing to identify beneficial owners of their customers.
Case study 10: BNP Paribas -2014
In June 2014, BNP Paribas (BNP), a French bank, agreed to enter a guilty plea to conspiring to evade sanctions by processing billions of dollars of transactions through the U.S. financial system on behalf of Sudanese, Iranian, and Cuban entities subject to U.S. economic sanctions. BNP agreed to pay a settlement of $8.9 bn imposed by U.S. authorities.
Department of Justice statement
https://bis.lexisnexis.co.uk/blog/categories/governance-risk-and-compliance/commerzbank-fine-PEPs
