In the first anti-money laundering (AML) case to be brought by the Financial Conduct Authority (FCA) in relation to commercial banking activity, the regulator announced last week that it has fined Standard Bank PLC £7,640,400. It is also the first AML case to use the new penalty regime, which applies to breaches committed from 6th March 2010.

Under the new regime larger fines are expected.

Standard Bank is the UK subsidiary of Standard Bank Group, South Africa’s largest banking group. Standard Bank Group is an international banking group with extensive operations in 18 African countries and operations in 13 other countries outside of Africa.

According to the FCA, the case concerns failings by Standard Bank in connection with its AML policies and procedures over corporate customers connected to politically exposed persons (PEPs). 

Between 15th December 2007 and 20th July 2011, says the FCA, Standard Bank failed to comply with Regulation 20(1) of the Money Laundering Regulations because it failed to take reasonable care to ensure that all aspects of its AML policies were applied appropriately and consistently to its corporate customers connected to PEPs.

Guidance issued by the Joint Money Laundering Steering Group provides that where a corporate customer is known to be linked to a PEP, such as through a directorship or shareholding, it is likely that this will put the customer into a higher risk category, and that enhanced due diligence (EDD) measures should therefore be applied. During the relevant period, Standard Bank had business relationships with 5,339 corporate customers of which 282 were linked to one or more PEPs.

The FCA reviewed Standard Bank’s policies and procedures and a sample of 48 corporate customer files, all of which had a connection with one or more PEPs. The results of this review highlighted serious weaknesses in the application of Standard Bank’s AML policies and procedures.

This meant that it did not consistently:

• carry out adequate EDD measures before establishing business relationships with corporate customers that had connections with PEPs; and

• conduct the appropriate level of ongoing monitoring for existing business relationships by keeping customer due diligence up to date.

The weaknesses in Standard Bank’s AML systems and controls resulted in what was considered an unacceptable risk of Standard Bank being used to launder the proceeds of crime.

“Banks are in the front line in the fight against money laundering,” said Tracey McDermott of the FCA. “If they accept business from high risk customers they must have effective systems, controls and practices in place to manage that risk. Standard Bank clearly failed in this respect.”

According to the FCA, Standard Bank and its senior management have co-operated with the FCA investigation and have taken significant steps at significant cost towards remediating the issues identified, including seeking advice and assistance from external consultants.

Standard Bank settled at an early stage of the investigation and qualified for a 30% discount on its fine. Without the discount the fine would have been £10.9 million.

Contact Lewis Nedas’ Criminal Lawyers in London

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This blog post is intended as a news item only – no connection between Lewis Nedas and the parties concerned is intended or implied.