UK Compliance Officers Investigated for Suspected Due-Diligence Violations: Sources

By Koos Couvée

Several anti-money laundering compliance officers under investigation by the U.K. Financial Conduct Authority allegedly neglected to conduct rigorous background checks on foreign officials and other high-risk customers, say analysts.

In March, the Financial Times reported that the FCA had launched investigations into 75 individuals and firms suspected of failing to comply with the U.K. money laundering regulations, or MLRs. The regulator separately told advocacy group Corruption Watch that 19 financial institutions and 15 individuals may incur criminal charges for violating AML rules.

Regulators suspect that many of the compliance officers relied solely on “very superficial” reviews of the origin of funds deposited by clients that inherently pose a high risk of financial crime, including politically exposed persons, or PEPs, according to Guy Wilkes, former head of enforcement at the FCA.

Three additional lawyers in London confirmed to ACAMS that many of the ongoing investigations stem from alleged failures to vet high-risk clients, and involve both civil and criminal inquiries.

Those apparently lackadaisical screening efforts may have violated the 2007 MLRs, which require banks in the United Kingdom to identify foreign PEPs and other high-risk customers, and subject them to enhanced due diligence.

Updated regulations rolled out last year expanded enhanced due-diligence requirements to domestic PEPs. The FCA told Corruption Watch in March that it has not yet launched an investigation into suspected violations of the 2017 MLRs.

Disclosure of the current batch of cases comes two years after the FCA introduced the U.K. Senior Managers and Certification Regime, or SMCR, under which financial institutions must make a single compliance officer ultimately accountable for AML lapses.

In June, FCA Head of Investigations Jamie Symington said in a speech that investigations of financial institutions usually entail investigations of senior managers.

The regulator took action against its first SMCR-related target on May 11, fining Barclays chief executive Jes Staley £640,000 for seeking to identify an internal whistleblower who raised concerns over the 2016 appointment of Staley’s long-term associate, Tim Main, to manage the bank’s branch in New York.

Wilkes, now an attorney with Mishcon de Reya in London, said he has seen the FCA increasingly ask bankers investigated for various breaches to attend “voluntary” interviews under 1984 rules that render any incriminating information collected during the talks usable in criminal prosecutions.

Evidence obtained during mandatory interviews can only be used in civil cases.

The London operations of overseas lenders tend to make an inviting target for the FCA because they often allocate fewer resources towards compliance with U.K. AML compliance rules, Jake McQuitty, a lawyer with Eversheds Sutherland, said.

The FCA has discretion as to whether to levy fines or mandate compliance upgrades in response to AML violations.

Last year, the regulator decided against penalizing a London-based senior manager at a British lender who failed to review a report drawn up by compliance officers outlining the firm’s exposure to money launderers.

The FCA concluded that the issues were not significant and could be resolved by improvements to internal systems and controls, according to a lawyer close to the case who spoke on condition of anonymity.

Topics : Anti-money laundering , Counterterrorist Financing , Know Your Customer
Source: United Kingdom , United Kingdom: Financial Conduct Authority
Document Date: May 18, 2018