UK Regulator Punishes EFG Private Bank For AML Control Shortcomings

Tom Burroughes

24 April 2013

A UK regulator has fined EFG Private Bank, the UK banking subsidiary of Switzerland's EFG International, a total of £4.2 million ($6.41 million) for failing to maintain effective anti-money laundering controls, it said today, adding to a list of firms that have been punished for such transgressions.

EFG Private Bank said no money laundering activity has been proven to have taken place.

The fine was imposed by the recently-formed Financial Conduct Authority on the firm for “failing to take reasonable care to establish and maintain effective anti-money laundering controls for high risk customers. The failings were serious and lasted for more than three years,” the FCA said in a statement.

The fine adds to punishments meted out by regulators on firms for AML systems failures and oversights in recent months. Other firms punished include HSBC, Standard Chartered and Coutts. (To see a full list of recent regulatory actions against firms, click here.)

“This is the first anti-money laundering fine issued by the FCA at a time when its approach to enforcement is under intense scrutiny. The FCA seems to show no change in approach from its predecessor, the FSA, in enforcing a tough stance on anti-money laundering. It remains to be seen whether the FCA will focus on any particular products, and how open the FCA will be to engaging in a constructive dialogue with market participants," Jeremy Hill, a London based partner at law firm Debevoise & Plimpton, said.

At the end of 2011 around 400 of EFG’s 3,342 customer accounts were deemed by the firm to present a higher risk of money laundering or reputational risk, and of these 94 were held by politically exposed persons, the FCA said.

The problems came to light when the-then Financial Services Authority – the regulator that has been broken up with some roles transferred to the FCA – carried out a “thematic review of how UK banks were managing money laundering risk in higher risk situations”, and visited EFG in January 2011.

“That visit and further investigation caused serious concern to the FSA. The investigation found that EFG had not fully put its AML policies into practice. Of particular concern was that 17 of 36 reviewed customer files, opened between December 2007 and January 2011, contained customer due diligence that highlighted significant money laundering risks, but insufficient records of how the bank’s senior management had mitigated those risks,” the FCA’s statement said.

“Of these 17 files, the FSA found that the risks highlighted in 13 files related to allegations of criminal activity or that the customer had been charged with criminal offences including corruption and money laundering,” it continued.

“For example in one account, EFG’s due diligence highlighted that a prospective client had acquired their wealth through their father, about whom there were allegations of links with organised crime, money-laundering and murder. However there was insufficient information on file to explain how the bank concluded that this risk was acceptable or how it was mitigating the risks,” it continued.

The regulator said EFG also “failed to appropriately monitor its higher risk accounts”. Of the 99 PEP and other high risk customer files reviewed by the FSA, 83 raised serious concerns about EFG’s monitoring of the relationship, it said.

EFG’s response

The firm said the FCA fine will “not impact reported profit this year as it was fully provided for in the 2012 results”.

“EFG Private Bank is disappointed that shortcomings were found relating to the period December 2007 to January 2011, even though it has found no evidence that money laundering actually took place. This is the first time EFG Private Bank has been the subject of disciplinary action. Senior management has cooperated fully with the FCA and remedial action has been taken to ensure that its systems and controls are robust,” it said.

“As announced in February, at the time of its annual results, EFG International recognises that regulatory compliance is a pre-requisite of growth, and that effective controls are more important than ever. Notwithstanding the improvements it has made in the UK and elsewhere, it has engaged an external party to provide an objective assessment of the effectiveness and efficiency of its approach, across all of its businesses,” it said.

EFG settled at an early stage of the investigation and qualified for a 30 per cent discount on its fine. Without the discount the fine would have been £6 million,” the FCA said.