The Financial Services Authority (FSA) has fined Habib Bank AG Zurich (Habib) £525,000 and its former Money Laundering Reporting Officer (MLRO) Syed Itrat Hussain £17,500 for failure to take reasonable care to establish and maintain adequate anti-money laundering (AML) systems and controls.
The failings at Habib lasted almost three years and exposed the firm to an unacceptable risk of laundering money.
Habib is a privately owned Swiss bank with twelve branches in the UK and approximately 15,500 customers. Approximately 45% of its customers were based outside the UK and about half of its deposits came from jurisdictions which, according to independent international organisations, had less stringent AML requirements or were perceived to have higher levels of corruption than the UK.
The FSA's investigation identified that during the period 15 December 2007 to 15 November 2010, Habib failed to establish and maintain adequate controls for assessing the level of money laundering risk posed by its customers. In particular, Habib maintained a high risk country list which excluded certain high risk countries on the basis that it had group offices in them. However, Habib's local knowledge of these countries did not negate the higher risk of money laundering they presented. The FSA also found that Habib failed to conduct adequate enhanced due diligence in relation to higher risk customers.
In two-thirds of the 68 customer files it reviewed, the FSA found one or more of the following significant failings:
the account had been inappropriately classified as normal risk;
the enhanced due diligence conducted was inadequate (in that insufficient information or supporting evidence had been gathered); and
the enhanced due diligence had not been conducted prior to transactions occurring on the account.
As MLRO, Hussain was responsible for oversight of Habib's AML systems and controls, but failed to ensure that these systems and controls were adequate. The FSA imposed a financial penalty on Hussain for these failings. He has now retired from the financial services industry.
Tracey McDermott, acting director of enforcement and financial crime, said:
"Habib's failings were unacceptable. Habib's belief that local knowledge of a country through a ggh a group office mitigated the higher money laundering risk posed by that country was entirely misconceived.
"Firms must take a dynamic approach to assessing money laundering risk so they can adapt to the ever-evolving risks of financial crime. It is a basic requirement that firms know their customers and understand the risks they pose. The requirement for enhanced due diligence recognises that some customers present a greater risk of money laundering than others and that firms therefore need to do more to identify, manage and control that risk. Habib fell short in this regard.
"It is critical that Money Laundering Reporting Officers properly evaluate, on an ongoing basis, the adequacy and effectiveness of the AML systems and controls which they are responsible for. MLROs have a key role to play in ensuring that firms take appropriate action to minimise the financial crime risks they face. Where individuals fail to meet their regulatory responsibilities we will not hesitate to take action."
Habib and Hussain agreed to settle at an early stage and therefore qualified for a 30% discount. Were it not for this discount, the FSA would have imposed a financial penalty of £750,000 on Habib and £25,000 on Hussain.