Tag: Regulatory Decisions

  • OFT fines Leicester-based estate agent almost twelve thousand pounds

    The OFT, in its first formal Regulatory penalty, has fined Leicester-based IPS Estate Agents Limited £11,844 for failing to comply with anti-money laundering regulations.

    IPS failed to comply with a number of requirements under the Money Laundering Regulations 2007, including those relating to:

    • verifying the identity of customers
    • keeping appropriate records
    • ensuring that relevant staff are aware of the law relating to money laundering and terrorist financing
    • establishing and maintaining appropriate, risk-sensitive policies and procedures.

    The failures relate to the period between March 2010 and October 2011. The OFT visited IPS premises to check compliance with the Regulations in June 2011 and again in October 2011.

    From the scope of the failures for almost all major areas of compliance to the Regulations you can almost conclude that virtually no compliance of any weight was conducted by the firm with no appropriate management policies and procedures for risk management and the subsequent communication and training of any policies to staff members to fulfill their obligations.

    Kate Pitt, OFT Deputy Director of Anti Money Laundering, said:

    ‘This fine sends out a message to all estate agents that they need to have appropriate measures in place to prevent their business from being used for money laundering or terrorist financing purposes.’

  • Memorandum of Understanding between HMRC and the FSA for joint supervision

    A Memorandum of Understanding between HMRC and the FSA was published on the FSA website on 1 June 2012. It’s about sharing information and joint visits. This will be of particular relevance to many money services businesses whom are supervised not just under the Money Laundering Regulations by HMRC but are also the FSA by the Payment Services Regulations.

    Businesses that are supervised by HMRC and the FSA will find this information useful. The memorandum documents the co-operation between the two organisations for monitoring and the execution of supervisory visits and functions.

    In preparing their Memorandum of Understanding the FSA and HMRC have had regard to the Statutory Code of Practice for Regulators1 which came into force on 6 April 2008. The Code sets out general principles by which regulatory activity should be undertaken, and provides the following guidance on the arrangements for collaboration between different regulators in paragraph 6.5 as follows:

    “Where two or more inspectors, whether from the same or different regulators, undertake planned inspections of the same regulated entity, regulators should have arrangements for collaboration to minimise burdens on the regulated entity, for example, through joint or co-ordinated inspections and data sharing”.

    Relevant businesses will have no increase in their burden for supervision, but enjoy a far more joined up approach from the supervisory authorities helping to ease the process.

    The Memorandum details co-operation concerning;

    • The disclosure of confidential information
    • Single points of contact
    • Joint visits

    The full document can be found by clicking on the following link;

    Memorandum of Understanding between HMRC and the FSA (PDF 54K) (Opens new window)

  • Landmark decision in Shah v HSBC Private Bank brings welcome relief for firms

    After four and half years, six reported decisions, three trips to the Court of Appeal and 27 days of trial, the High Court of Justice has today dismissed in its entirety Mr Shah and his wife’s claim for over US$300m against HSBC Private Bank (UK) Limited. This is a landmark decision that confirms a bank’s right to delay execution of a customer’s payment instructions and refuse to provide information in circumstances where the bank has a suspicion of money laundering that has been notified to the Serious Organised Crime Agency (“SOCA”).

    Berwin Leighton Paisner LLP reporting on the case state that Mr and Mrs Shah (the “Claimants”) were customers of the Bank. Between 20 September 2006 and 28 February 2007, the Bank delayed the execution of four separate payment instructions given by the Claimants, including an instruction to transfer approximately US$28 million. The reason for the delay was that the Bank held a suspicion that the funds in the Claimants’ account were criminal property and it had therefore made an authorised disclosure to SOCA seeking consent to make the payments. In each case, whilst the Bank was waiting for a response from SOCA (SOCA has 7 working days to respond), the Bank told the Claimants that it was complying with its statutory obligations but declined to provide any further information to the Claimants or their solicitors. Once consent had been given, the Bank complied with the payment instructions except for one instruction which the Claimants had previously cancelled.

    The Claimants lodged a claim against the Bank for breach of contract contending that the Bank’s failure promptly to carry out the payment instructions and to explain the reasons for not doing so had caused them substantial losses (over US$300m) in Zimbabwe. It was alleged that, upon hearing rumours that Mr Shah was suspected of money laundering in the UK, the Zimbabwean authorities became suspicious, froze and then seized Mr Shah’s assets.

    At trial the court was required to consider the following key questions:

    Did the Bank suspect money laundering? and
    Did the Bank have a duty to provide information about the delay?

    Mr Justice Supperstone of the Queen’s Bench Division rejected the Claimants’ claim in its entirety.

  • Coutts fined for failings in money laundering controls

    Private bank Coutts has been fined £8.75m by the Financial Services Authority (FSA) for not taking adequate measures to prevent money laundering. The FSA said the failings “resulted in an unacceptable risk of Coutts handling the proceeds of crime”.

    The findings related to high-risk people, especially those whose political positions meant they were vulnerable to corruption. Coutts clients include the Queen, pop stars and sports personalities. It is owned by Royal Bank of Scotland.

    Coutts agreed to settle at an early stage in the process. It said it was confident that its anti-money laundering processes were now robust.

    “Since the FSA first raised its concerns, we have implemented a number of improvements to prevent any recurrence of these failings,” said Rory Tapner, chief executive of the wealth division of Royal Bank of Scotland. “We remain committed to ensuring that our systems and controls are robust and counter the risk of financial crime in all the markets in which we operate.”

    The fine followed the FSA’s visit to Coutts in October 2010 as part of its review into how banks were managing situations in which there was a high risk of money laundering. The regulator said that Coutts had failed to check the source of funds when prospective new clients tried to open accounts. It also failed to check up on any intelligence about its existing or prospective clients and had not kept information on those clients up to date.

    The FSA said there had been deficiencies in nearly three quarters of high-risk customers’ files.

    “Coutts’ failings were significant, widespread and unacceptable,” said Tracey McDermott, the FSA’s acting director of enforcement and financial crime. “Its conduct fell well below the standards we expect and the size of the financial penalty demonstrates how seriously we view its failures.”

  • Shah v HSBC: Court of Appeal Says the Identity of Staff Making SARs in Good Faith is Not Disclosable

    Shah v HSBC: Court of Appeal Says the Identity of Staff Making SARs in Good Faith is Not Disclosable

    The Court of Appeal in London ruled on 13 October that HSBC Private Bank did not have to disclose the identity of employees who had made internal reports which had led to suspicious activity reports (“SARs”) being filed with the authorities unless there was a firm suggestion on bad faith on their part.

    The judgment is the result of satellite litigation arising from the more famous 2010 case of Shah v HSBC, in which the Court of Appeal ruled that parties which had suffered loss as a result of SARs being filed were entitled to demand proof from the regulated institution responsible that the suspicion on which the SAR was founded existed.

    On the particular facts of the original case, the High Court ordered HSBC to identify the employees by function, but not by name. The Shahs appealed the court’s refusal to order the disclosure of the names of the employees, and HSBC cross- appealed against the court’s finding that its obligation to make standard disclosure required their names to be revealed in the first place (with the names only being protected by PII, and not as of right).

    The Judgement of the Court of Appeal
    Within HSBC there were three stages of AML reporting:
    1. The relationship manager with a particular client would report any AML suspicion to the compliance department;
    2. The compliance department would report the matter internally to the MLRO;
    3. The MLRO would then, if appropriate, file an SAR with SOCA.

    HSBC had disclosed a series of memos, internal reports, and similar documents. With the exception of the MLRO, the identity of all employees concerned had been redacted; they were identified only by the department (client relationship, compliance or MLRO) that they worked for. The documents did however reveal the information based on which the MLRO formed his suspicion.

    The Test for Disclosure

    The court found that the redacted identities of the employees concerned was not material on which HSBC relied to prove its case. As a result, the relevant question was: is the material either material which would adversely affect HSBC’s case or material which would support the Shahs’ case?
    In answering the question it was important to remember that the issue remaining in the wider case of Shah v HSBC after the previous decision of the Court of Appeal was a narrow one: did HSBC have a genuine suspicion at the time when the SARs were filed? Accordingly, the Shahs did not put forward a positive “case”; they simply sought to test the bank’s case that it did have such a suspicion. For that reason, the court ruled that the only circumstance in which the employee identities would be disclosable was if they adversely affected HSBC’s case.
    The Shahs had stated that two employees of HSBC (“Ms S” and “Mr J”) might have had the motivation to make an internal AML report in bad faith. One had asked for a loan from Mr Shah and been refused; the other had received an abusive email from him after a transaction had been delayed. The Shahs submitted to the court that if any of the anonymous employees concerned in making an internal report turned out to be Ms S or Mr J, they might be able to allege bad faith.

    Refusing disclosure, Lord Justice Lewison commented:
    The more I listened to the explanation of why the claimants wanted the names, the more convinced I became that, to use the familiar cliché, this was a fishing expedition… [the Shahs] did not say that even if Ms S’s name was revealed as one of the sources [the Shahs] would be able to assert bad faith; merely that they might be able to do so. Even that possibility was only tentatively advanced. It is all speculation and surmise.

    The court concluded that, absent a firm suggestion of bad faith by the Shahs, HSBC was entitled to withhold the identity of the staff concerned as being irrelevant to the matter under dispute. For that reason, the bank did not have to rely on the doctrine of public interest immunity.
    Conclusion

    This important judgment provides reassurance to employees of firms in the regulated sector of England and Wales that their identities will be protected if they make internal AML reports, unless there is a firm suggestion that in doing so they acted in bad faith. It also makes clear that there is no absolute requirement to disclose the identity of the MLRO who makes an external SAR, although as a regulated firm is now required to show that it had suspicion if its reporting is challenged, it may be that it will be necessary for the MLRO (if no one else) to come to court and explain why he made the report that he did.

  • 30.11.10 Accountant fined £1,080 for a failure to verify a client

    The ICAEW has made the following regulatory decision in a case for a failure to verify a client in accordance with the Money Laundering Regulations.

    Consent Orders made on 1 June 2010

    With the agreement of Andrew Nigel Hamilton of 38 Dean Park Mews, Edinburgh EH4
    1ED, the Investigation Committee made an order that the member be severely
    reprimanded, fined £2,000 and pay costs of £1,080 with respect to a complaint that:

    In February 2007, Mr A N Hamilton FCA acted for X on behalf of his firm, Y, when he
    had failed to verify her identity or keep records of the evidence obtained, contrary to
    section 18 of the anti-money laundering ‘Second Interim Guidance for Accountants’
    D6448

  • 30.11.10 Accountant fined £5,000 for a failure to report

    The ICAEW made the following regulatory decision in the following case for a failure to make a suspicious activity report in a timely basis

    Consent Orders made on 28 July 2010

    With the agreement of Michael Martin Shenker of 5Wellesley Court, Apsley Way,
    London NW2 7HF, the Investigation Committee made an order that the member be
    severely reprimanded, fined £5,000 and pay costs of £2,075 with respect to a
    complaint that:

    Between 7 June 2005 and 16 February 2006 Mr M M Shenker FCA failed to comply with
    statement 1.304 of the Members Handbook in that he failed to make a suspicious activity
    report on a timely basis to the National Crime Intelligence Service when he had a
    suspicion or reasonable grounds to suspect that Mr X’s activities in relation to the
    business of Y Limited were unlawful. D6496