Incompliance with anti-money laundering regulations can lead to strict fines

18 July 2022

AML, Banking & Finance, White collar crimes and investigations, Corporate Clients

The EU is one of the most heavily regulated financial jurisdictions from an anti-money laundering (AML) perspective, and even stricter regulations appear to be coming in the future. The EU Fourth and Fifth AML Directives provide a strict set of rules that the obligated entities must follow to mitigate the risk of money laundering and terrorist financing. In transposing those EU Directives, Member States can enforce even more stringent policies to identify suspicious activities. Falling to comply with those will most likely result in the obligated entity being fined and having to optimise its internal rules and train its employees or risk even further civil and/or criminal charges depending on the case.

Furthermore, the EU Parliament can place a third country on the list of High-Risk Third Countries if the jurisdiction does not adequately mitigate the risks of money laundering and thus fails to comply with AML guidelines. 

AML and Credit Suisse

The most recent example of such fines is the case of Credit Suisse. According to a publication in the Financial Times, the bank was fined for failure to comply with the AML regulations and overlooking red flags displayed by clients (e.g., parties linked to organised crime and assassinations depositing significant sums of cash stored in suitcases).

As a result, Credit Suisse was fined 18.8m, paid as compensation to the Swiss government.

A stricter internal implementation of AML regulations could have saved the company from the fine.

The bank should have implemented enhanced customer due diligence (ECDD) for clients and transactions perceived as high risk. ECDD implementation involves a more thorough verification of the client’s identification as well as a more comprehensive examination of the source of funds used during any given transaction. This level of verification can be achieved when a bank sources information from third parties (also compliant with the EU AML Directives) and enacts internal requirements for requesting information from the client (e.g., KYC questionnaire, filling out declarations, requesting supporting documents etc).

Implementing internal guidelines around AML policy also supports bank employees in informing management of suspicious client behaviour and initiating ongoing monitoring of a client’s transactions.  It is important to note that employees do not need conclusive evidence when observing any red flags; mere suspicion ought to be enough to implement stricter monitoring. When there is sufficient suspicion of non-compliant behaviour, the bank should file a suspicious activity report with the relevant local regulator. Namely, the Money Laundering Reporting Office Switzerland (MROS), in the case of Credit Suisse, or other appropriate authorities, depending on the location of the obligated entity.

If an obligated entity suspects it is part of a money laundering scheme, it should terminate the respective business relationship immediately. While this can be considered a drastic course of action, it ensures compliance from a regulatory standpoint and ultimately protects obligated entities from enduring significant fines that can reach €5 million or 10% of their annual turnover

Conclusion

Recently, anti-money laundering and countering terrorist financing (CTF) measures have only gotten sticter with an ever-growing list of new AML rules set by the Financial Action Task Force and later implemented into the EU AML Directives. 

The last Supranational Risk Assessment conducted by the EU Commission showed that the risk of money laundering is increasing, and cash transactions are still one of the main identified risks. Even further, the use of cash is the main trigger for the filing of suspicious transaction reports.

Keeping in mind the monitoring of AML and CTF compliance performed by the EU and the Мember States, obligated entities must be vigilant to mitigate the risks of money laundering so as not to risk being fined themselves.

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© New Balkans Law Office 2022