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Standard Chartered Bank Fined £102.2 Million for AML Failings

SCB Fined £102.2 Million for AML Failings

15th April 2019

The FCA has handed out their second biggest fine ever for AML failings this last week. Standard Chartered Bank (SCB) was found to have breached two areas of its business that were considered higher risk: its UK Wholesale Bank Correspondent Banking business ad its branches in the United Arab Emirates (UAE).

The regulator found that SCB had “serious and sustained shortcomings” in their controls relating to customer due diligence as well as ongoing monitoring.

In particular, SCB failed to establish and maintain risk-based policies and procedures with regards to anti-money laundering as well as failed in making sure that its branches in the UAE applied the equivalent standard of AML and counter-terrorist controls as is required in the UK.

As firms will know, under the Money Laundering Regulations 2007 (MLR), firms are required to establish and maintain appropriate risk-based policies and procedures to reduce the risk that they may be used for laundering of the proceeds of crime, the evasion of financial sanctions or for terrorist financing. Furthermore, the MLRs also imposed a duty on a firm to ensure its global (non-EEA) subsidiaries and branches also apply policies and procedures in relation to due diligence and ongoing monitoring as are the equivalent of those applied to the firm in the UK.

However, following the FCA’s investigation, SCB failed on both of these counts. There were substantial failings in SCB’s own internal assessments of the adequacy of its AML controls, as well as in its approach to identifying and mitigating significant money laundering risks and the escalation of those risks. As a result, these shortcomings exposed SCB to the risk of breaching sanctions as well as increased the risk of SCB receiving and/or laundering the proceeds of crime.

Some examples of SCB’s failings by the FCA included:

• Authorising the opening of an account for a consulate with 3 million UAE Dirham in cash in a suitcase (the equivalent of just over £500,000) with little evidence of investigating where the funds originated from;
• Failing to obtain sufficient information on a customer exporting a commercial product which could, potentially, have a military application. This product was exported to over 75 countries, including two jurisdictions where armed conflict was taking place or was likely to be taking place;
• Repeated and consistently poor due diligence on UAE customers whereby transactions were inconsistent with the business profile of the customer and customers for whom their source of funds was unclear; and
• Failing to review due diligence on a customer despite repeated red flags such as a blocked transaction from another bank indicating a link to a sanctioned entity.

The Director of Enforcement and Market Oversight at the FCA, Mark Steward described SCBs oversight of its financial crime controls as “narrow, slow and reactive.” Furthermore, the commented that the breaches were “especially serious because they occurred against a backdrop of heightened awareness within the broader, global community, as well as within the bank, and after receiving specific attention from the FCA, US agencies and other global bodies about these risks.”

A higher financial penalty of £145,947,500 would have applied had SCB not agreed with the FCA’s findings and settlement.

Within SCB’s Final Notice, the FCA highlighted that whilst financial crime compliance is often perceived within firms to be the responsibility of compliance or a few key individuals, the lesson from SCB’s fine shows the need to everyone across the business to ensure financial crime controls are effective in mitigating the risk of financial crime.

As a timely reminder, firms should read SCB’s final notice and remember - if you are not able to apply Customer Due Diligence (CDD) upon a customer then you must not accept the customer or perform any transactions with or for that person. This is also true of any existing customers – if you are not able to apply CDD measures to any existing customer, then the firm must cease its relationship with that customer.

Compliance & Client Due Diligence Support

If you would like assistance in reviewing your current client due diligence processes or client-on-boarding procedures or if you would like to arrange tailored AML training for your firm, please contact our experienced team of compliance specialists who would be happy to help.

We can assist with:

• Client Due Diligence (CDD)
• Client On-boarding Procedures
• MLRO’s Annual Money Laundering Risk Assessment
• Tailored and Refresher Training:

- AML & Prevention of Financial Crime,

- Role of the MLRO

Read our latest articles, news and views affecting compliance and regulation in the UK Financial Services Industry.