Inadequate KYC controls which resulted in huge fines

Inadequate KYC controls which resulted in huge fines

An ever-increasing amount of banks across the world are finding themselves in the middle of scandals connected with illegal financial operations, that have had to be prevented by the Know Your Customer procedure. This had not left the Chief Legal Officer of BASIS ID — Arina Tsekanina indifferent as she has prepared the list of TOP3 largest scandals known as of now.

As Financial Authorities are publishing the reports of the previous year, we would be sure to say that Anti-Money Laundering issue is now in the very brightest spotlight. Underestimating AML controls and risk management at the present moment means laying yourself and your firm a serious trap when operating in the financial industry because the fines are… well, just have a look yourself.

1. £163 million FCA fine to Deutsche Bank

Deutsche Bank AG was fined on 31st January 2017 £163,076,224 for failing to maintain an adequate AML control framework during the period between 1 January 2012 and 31 December 2015. Quite apparently, Deutsche Bank failed to diligently identify their customer which lead to transfer approximately $10 billion, of unknown origin, from Russia to offshore bank accounts in a manner that is highly suggestive of financial crime, as reported by the FCA. Apart from that, it was made clear that the bank did not audit the actions of the division responsible for KYC, did not implement automated AML systems for detecting suspicious trades and did not have AML policies and procedures. It is reported as being the largest penalty ever imposed by the FCA.

2. £72 million FCA fine to Barclays Bank

Fine of £72,069,400 was imposed by FCA to Barclays Bank for ignoring compliance requirements with regard to high-risk clients who performed transactions for the sum of £1.88 billion pounds. FCA representative Mark Steward marked that “Barclays ignored its own process designed to safeguard against the risk of financial crime and overlooked obvious red flags to win new business and generate significant revenue”, which is £52,3 million pounds. So, the policies and high-risk transactions were ignored because Barclays did not want to cause its clients inconvenience.

3. 10 million euros ACPR fine to BNP Paribas

In 2017, French Prudential Supervision and Resolution Authority has imposed 10 million euros fine on BNP Paribas for inadequate anti-money laundering controls. Previously fined by U.S authorities for almost $9 billion for violating sanctions regime, BNP was now accused of having implemented insufficient methods for tracking down suspicious customers and their transactions.

This being said, the regulator’s appetite for auditing controls of financial institutions is rising rapidly. Following AML scandals in Europe with the case surrounding Danske Bank, authorities began to inspect the banks actively and, what is more important, increased their effort to hold senior executive staff personally liable for such compliance failures. For example, one of the biggest fines granted to the executive in 2018, was $175,000 fine to the CEO of Merchants Bank of California, N.A., Daniel Roberts. Overall, only in the first half of 2018, a total sum of $1.7 billion were issued for AML and with the current dynamics, we can hardly say we will see a better picture the first half of 2019.

BASIS ID is proudly offering the Know Your Customer service to both FinTechs and banks. It is never late to lift your risk management to a whole new level by fully complying to the regulatory requirements, automating the Customer Due Diligence process and providing the highest level of customers and partners background check. Get acquainted with the solution by BASIS ID and schedule your demo at www.basisid.com

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