This article was originally written for and featured in Spear’s.

Last week, EFG Private Bank Ltd, the UK arm of the Switzerland-based EFGI Group, was fined £4.2 million for failing to establish effective controls against money laundering. The case is a stark reminder of the importance of taking a proactive approach to compliance.

EFG is a well-established provider of private banking and wealth management services to high net worth individuals, the vast majority of whom are based overseas including known higher risk jurisdictions.

Following on from a thematic review by the now defunct Financial Services Authority in 2011, the newly formed Financial Conduct Authority (FCA) found a catalogue of failings in respect to EFG’s anti-money laundering systems and controls in relation to its high risk customer relationships.

The £4.2 million punishment is another addition to the growing list of high profile institutions that have been penalised for a lack of effective money laundering management. Royal Bank of Scotland, Coutts & Co and Habib Bank AG Zurich have all faced significant multi-million pound fines.

Most recently, HSBC was also criticised by the UK regulator and forced to agree to a new code of good behaviour following its £1.2billion fine from US regulators over money laundering allegations.

Of importance in this case was the revelation that while EPG had compliant policies and procedures in place, they were not effectively implemented in practice.

In particular, of the customer files reviewed by the FCA, 17 files did not contain sufficient information to show how EFG’s senior management had, under its own policies and procedures, adequately recognised, evaluated and mitigated the associated risk of money laundering.

This is startling given that of those 17 files, 13 included customers charged with criminal offences, including corruption and money laundering, as well as other allegations of criminal activity.

The case serves as a clear warning from the FCA of the danger of taking a ‘tick box’ approach to financial crime compliance. Having good paper-based policies will be no defence if they are not followed in practice.

In order to maintain effective financial crime systems and controls, corporates must take steps to ensure that a culture of compliance permeates the institution at all levels. At the same time, the policies and procedures must be regularly monitored and evaluated so they can grow organically to meet the ever-changing risks faced by the business.


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