Anti-money laundering (AML) policies and procedures may look great on paper but unless followed in practice, and evidenced as being followed, they won’t prevent a fine being imposed by the regulator when it comes inspecting.

This was the position that EFG Private Bank Ltd found itself in following a Financial Services Authority (FSA) thematic review of organisations facing a higher money laundering threat in 2011. The FSA found EFG to be in breach of Principle 3 of the FSA’s Principles for Business, which states that "a firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems".

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EFG is the UK private banking subsidiary of Swiss-based EFGI Group, a global private banking group. Much of its client base resides in countries without AML requirements equivalent to those in the UK and/or carry a higher risk of money laundering having been identified, by industry recognised sources, as having a greater level of corruption. EFG had identified some of its customers as presenting a high risk of money laundering. It was EFG’s serious, systemic and continued failings in relation to these customers that led to the FSA finding EFG failed to take reasonable care to establish and maintain effective AML systems and controls. It had exposed itself to a heightened risk of handling proceeds of crime. A £4.2m fine was imposed.

The FSA found that EFG had failed to:
– Document how potential money laundering risks posed by its higher-risk customers had, under its own policies and procedures, been adequately recognised and evaluated or how the associated risk of money laundering had been mitigated;
– Keep appropriate records to justify why specific controls it had put in place to mitigate AML risks were either not implemented, or were amended;
– Sufficiently demonstrate that it had obtained information that fully supported the recorded explanation of the source or sources of wealth and funds of higher risk customers; and
– Ensure an adequate and effective ongoing monitoring programme to enable it to re-assess the risk profiles of its customers as they developed over time or to apply enhanced monitoring of higher risk customers.

There was no suggestion that EFG had deliberately or recklessly contravened regulatory requirements, but the FSC considered that its failings were sufficiently serious to merit the financial penalty.

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The due diligence measures to be applied by an organisation are those appropriate to the risk of money laundering and terrorist financing that the particular organisation faces. The higher the threat, the more rigorous the measures need to be. Those responsible for AML policies need to ensue they are robust, implemented and actively enforced.

Greg Standing is a partner in Wragge & Co’s motor finance litigation team