EBA speech on AML and CTF powers

On 5 September 2019, the EBA published a speech given by Jose Manuel Campa, EBA Chair, on the EBA’s anti-money laundering (AML) and counter-terrorist financing (CTF) powers.

Mr Campa talks about the EBA’s existing powers in this area, commenting on the limited nature of its powers to enforce standards and guidelines and promote convergence. EBA recommendations cannot make up for weak provisions in EU law, and associated weak or ineffective supervisory practices at national level. Consideration needs to be given to how the EBA can best use its full range of ex ante and ex post implementation tools to facilitate and encourage effective implementation, while ensuring responsibility for effective supervision sits with the national competent authorities (NCAs).

The EBA has developed a good understanding of the AML and CTF problems in the EU and has shared its experience and lessons learnt with the European Commission. The EBA has seen some poor practices in NCAs. A concerted effort is needed to address this. Mr Campa outlines some of the steps that have already been taken in this area.

Recent “modest but meaningful” changes have been made to the EBA Regulation (1093/2010) to give the EBA more powers and tasks. However, Mr Campa believes some challenges remain. The EU’s minimum harmonisation and directive-based approach to AML and CTF does not eliminate national differences. It also limits how much convergence the EBA guidelines and standards can achieve. NCAs and firms will not be able to comply with EBA guidelines if national law stands in the way. Divergence of national practices exposes the EU internal market to significant money laundering and terrorist financing risks. A move to a regulation-based framework would help address these divergences, and is arguably a prerequisite to more centralisation. Short of a regulation, a more concrete set of supervisory powers, with more prescriptive common guidelines for sanctions of AML and CTF activities (analogous to the approach taken in the CRD IV Directive (2013/36/EU) for prudential supervision) would also help.

In the near term, new mandates could empower the EBA to issue legally binding standards to ensure co-operation, joint risk work and associated decisions in AML colleges. The EBA could also establish a common risk assessment methodology for AML supervisors and more harmonised national approaches to customer due diligence (CDD). Inconsistent national approaches to CDD are frequently identified as stifling innovation and increasing the cost of cross-border operations.

PRA Dear CEO letter on money laundering and terrorist financing risks in prudential supervision

On 5 September 2019, the PRA published a Dear CEO letter on money laundering and terrorist financing risks in prudential supervision, which has been sent to PRA-regulated firms subject to the Capital Requirements Regulation (575/2013) (CRR).

In the letter, the PRA draws firms’ attention to the EBA’s July 2019 opinion (EBA-Op-2019-08) on money laundering and terrorist financing risks in prudential supervision (see Legal update, EBA opinion invites prudential supervisors to communicate with firms on AML and CTF risks in prudential supervision).

The PRA fully supports the EBA’s opinion. It will continue to consider money laundering and terrorist financing concerns in its prudential assessments of firms, especially those stemming from anti-money laundering (AML) and counter-terrorist financing (CTF) authorities’ assessments of these risks. It will also continue to consider the extent to which money laundering and terrorist financing concerns may have an impact on its prudential objectives, and act on these concerns. Recognising the importance of these issues, the PRA will continue to co-operate closely and share information with the FCA and other AML and CTF authorities concerning individual firms (including their branches) and groups.

The PRA reminds firms:

  • They are responsible for ensuring that members of their management body and senior management are, at all times, of sufficiently good repute, and possess sufficient knowledge, skills and experience to perform their duties (that they are “fit and proper”).
  • In line with rule 2.1 of the PRA’s General Organisation Requirements (GOR) Part, they must have robust governance arrangements. This includes a clear organisational structure with well-defined, transparent and consistent lines of responsibility, effective processes to identify, manage, monitor and report risks they are or may be exposed to (including money laundering and terrorist financing risks), and internal control mechanisms, including sound administrative and accounting procedures and effective control and safeguard arrangements for information processing systems.
  • To ensure the FCA-prescribed senior management responsibility for financial crime is allocated to individuals of sufficient seniority to perform the role effectively.

PRA advises that its supervisors will consider the points raised in the EBA opinion and in this letter as part of their ongoing supervisory engagement with firms. Firms with any queries about the letter should contact their regular PRA supervisory contact.

The EBA produced the opinion in response to the Council of the EU’s AML action plan, (see Legal update, Council of the EU conclusions on AML action plan).

Businesses not compliant with money laundering regulations April 2019 to July 2019

On 3 September 2019, Her Majesty’s Revenue and Customs (HMRC) published details of those businesses that have been made subject to penalties for non-compliance with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/692) (MLR 2017) over the period 6 April 2019 to 31 July 2019.

HMRC’s report discloses that the following five identified businesses received penalty notices over the relevant period:

  • The largest penalty notice of £7,832,155 was given to Touma Foreign Exchange Ltd of Greenford Road, London, UB6 8SJ, owing to its failure to carry out appropriate risk assessments, its failure to have the correct anti-money laundering policies, controls and procedures in place, its failure to train its staff properly in addressing and combatting money laundering risks, and for inadequate customer due diligence and record keeping. The breaches found against this company were under regulations 18(1), 18(4), 19(1), 24(1), 27(1), 28(2), 28(3), 28(4), 33(1), 35(1) and 40(1) of the MLR 2017.
  • Three of these companies had the penalties of £500 imposed owing to the failure of the business to provide HMRC with requested information or documents pursuant to regulation 66 of MLR 2017.
  • One business received a penalty notice of £3721 owing to failures in having the correct policies, controls and procedures, and for failing to conduct appropriate due diligence pursuant to regulations 19(1), 27, 28 and 33(1) MLR 2017.

The total number of minor penalties imposed was four and the value of those penalties was £1071. Where a minor penalty is imposed, HMRC does not disclose the identity of the penalty subject or the nature of the breach.

Although the £7.8m penalty stands out, the figures suggest the extent to which HMRC are enforcing breaches of the MLR 2017 is limited. The figures would be complemented by published information on the number of investigations and whether any other form of settlement has been applied.

Sentence of five years and eight months’ imprisonment for money laundering and contempts linked to insider dealing (Crown Court)

On 3 September 2019, at Southwark Crown Court, HHJ Hehir sentenced Richard Baldwin, a dealer in luxury watches, to a combined term of five years and eight months’ imprisonment (in the defendant’s absence) following a conviction for an offence of money laundering and a separate admission of contempts of court in relation breaches of a restraint order imposed in 2011. Mr Baldwin’s conviction arose out of the Financial Conduct Authority’s (FCA’s) Operation Tabernula, which was a complex insider dealing investigation. This investigation looked at the trading activity associated with an employee of various investment banks and, as part of that operation, Mr Baldwin was identified as a recipient of over £1.5 million. This money was placed by co-conspirators into the company account of a company established by Mr Baldwin in Panama. A false invoice trail was then created which sought to evidence legitimate sources for the money which was then dissipated through other Panamanian companies and offshore accounts.

The contempts of court arose from Mr Baldwin’s failure to adhere to the terms of a restraint order which prevented him dealing in assets and also covered his failure to repatriate assets that he had dealt with.

Two of Mr Baldwin’s co-conspirators, Mr Hind and Mr Dodgson, were made subject to prohibition orders, under section 56 of the Financial Services and Markets Act 2000 (FSMA) in November 2018. For more information see Legal update, FCA bans two individuals for not being fit and proper.

Source: FCA: Richard Baldwin, sentencing 3 September 2019 (3 September 2019).

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