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 in order to mitigate the risk of money laundering and terrorist financing. In transposing those EU Directives, Member States can implement even stricter rules 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, if third countries outside of the EU fail to comply with the set of AML regulations and the EU Parlament finds that their policies do not mitigate the risks of money laundering they can be put on the list of High Risk Third Countries.

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 not complying with the AML regulations and overlooking red flags such as deposits of significant sums of cash being brought in suitcases and  links of the parties to organised crime and assassinations.  

As a result, Credit Suisse was ordered to pay a fine of  18.8m in compensation to the Swiss government.

Stricter internal implementation of AML regulations could have saved the company the fine

The bank should have implemented enhanced customer due diligence (ECDD) for clients and transactions which can be perceived as high risk. ECDD implementation does not only involve the client’s identification and verification, but also more thorough examination of the source of funds for each transaction. This is most successfully achieved by obtaining information from third parties, also compliant with the EU AML Directives and having internal requirements for requesting information from the client himself, e.g. KYC questionnaire, filling out declarations, requesting supporting documents etc.

Internal guidelines should be implemented so that once a bank employee notices any red flags they should immediately inform their manager or a person with a higher position in the bank and later should have immediately initiated an ongoing monitoring of the client’s transactions. It should be noted that employees do not need to have conclusive proof, but mere suspicion ought to be enough to implement such stricter monitoring. Once such suspicion is established, a suspicious activity report ought to be filed with the relevant local regulator, namely the Money Laundering Reporting Office Switzerland (MROS) in the case of Credit Suisse or other relevant authorities depending on the location of the obligated entity.

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

Conclusion

Recently, anti-money laundering and countering of terrorist financing (CTF) messures 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 Commision showed that the risk of money laundering is getting higher 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.

Having in mind the close monitoring by the EU and the Мember State’s regulatory bodies for the correct and full compliance with the AML and CTF measures, 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