Anti-Money Laundering

UK Court Rules in Favour of Bank in Anti Money Laundering Case
Europe, Middle East and Africa

The United Kingdom (UK) High Court of Justice has dismissed a claim for damages brought against HSBC Private Bank (UK) Ltd (HSBC) by a customer in Shah and another v HSBC Private Bank (UK) Limited [2012] (16 May 2012). According to the Financial Times, in 2006 Jayesh Shah asked HSBC to transfer US$28 million to his HSBC account in London from an account he held with Crédit Agricole. HSBC suspected that the funds may be the proceeds of crime and filed a suspicious activity report (SAR) with the Serious Organised Crime Agency (SOCA), delaying making the transfer until consent was given by SOCA. Three other transfers were similarly delayed while waiting for consent, and Mr Shah was told the delay was due to HSBC complying with its UK statutory obligations. Mr Shah claimed that HSBC’s failure to carry out his payment instructions caused him substantial financial loss.

Justice Supperstone said that HSBC “did suspect that the proposed four transactions constituted money laundering” and the bank was right to refuse to provide Mr Shah with information as doing so would contravene the Proceeds of Crime Act 2002. Justice Supperstone also concluded that HSBC’s delay in carrying out the payment instructions “did not cause any loss” and that Mr Shah “failed to take reasonable steps to mitigate or avoid his loss”. HSBC’s lawyers Berwin Leighton Paisner described the ruling as “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 [SOCA]“.

Berwin Leighton Paisner’s media release (16 May 2012)
Financial Times: HSBC wins suspicious transactions case (16 May 2012)

Related news item:
Reuters: Analysis: HSBC victory in UK case a relief to money-laundering monitors (17 May 2012)
(Source: BAILII;; Berwin Leighton Paisner; Financial Times; Reuters)

FINRA Fines Firm US$100,000 for AML Failings

The United States (US) Financial Industry Regulatory Authority (FINRA) has issued a Letter of Acceptance, Waiver and Consent (22 May 2012), fining Newport Coast Securities Inc (Newport) US$100,000 for failing to maintain a proper anti-money laundering (AML) compliance program and establish and implement policies, procedures, and internal controls reasonably designed to detect and report suspicious transactions, between 2008 and 2010. According to FINRA, Newport has accepted and consented to the fine without admitting or denying FINRA’s findings.
(Source: FINRA)

FINRA Fines Firm US$10,000 for AML Deficiencies

The United States (US) Financial Industry Regulatory Authority (FINRA) has issued a Letter of Acceptance, Waiver and Consent (23 May 2012) against investment advisors Mahler & Emerson, fining the firm US$10,000 for failing to conduct independent testing of its anti-money laundering (AML) program between 2006 and 2010 and for failing to maintain an adequate system to preserve the firm’s email correspondence. According to FINRA, Mahler & Emerson has accepted and consented to the fine without admitting or denying FINRA’s findings.
(Source: FINRA)

Belarusian Bank Identified as a “Primary Money Laundering Concern”

The United States (US) Department of the Treasury has announced that it has deemed Belarus based JSC CredexBank (Credex) as a financial institution of primary money laundering concern pursuant to section 311 of the USA Patriot Act. According to the Department of Treasury, “it has reason to believe that Credex has engaged in high volumes of transactions that are indicative of money laundering on behalf of shell corporations, and has a history of ownership by shell corporations whose own lack of transparency contributes to considerable uncertainty surrounding Credex’s true beneficial ownership”.

Department of the Treasury’s media release (22 May 2012)

FinCEN Proposes Special Measures Against Credex
The US Financial Crimes Enforcement Network (FinCEN) has released a Notice of proposed rulemaking (22 May 2012) “to propose the imposition of two special measures against JSC CredexBank”. According to FinCEN, The measures would impose record keeping and reporting requirements, and prohibit or condition the opening or maintaining of correspondent or payable-through accounts for the identified institution by US financial institutions. Comments on the notice close within 60 days of the notice being made available on the Federal Register and may be submitted via the Federal E-rulemaking Portal.

Related news item:
Bloomberg: Belarus to Audit Credexbank Amid U.S. Money Laundering Claims (24 May 2012)
(Source: Department of the Treasury; Government Printing Office; FinCEN; Bloomberg)

UK Regulator Fines Bank and MLRO for AML Control Failings
Europe, Middle East and Africa

The United Kingdom (UK) Financial Services Authority (FSA) has announced that it “has fined Habib Bank AG Zurich (Habib) £525,000 and its former money laundering reporting officer (MLRO) Syed Itrat Hussain £17,500 for failure to take reasonable care to establish and maintain adequate anti-money laundering (AML) systems and controls”. According to the FSA, between 15 December 2007 and 15 November 2010, “Habib failed to establish and maintain adequate controls for assessing the level of money laundering risk posed by its customers”, despite the fact that it “maintained a high risk country list which excluded certain high risk countries on the basis that it had group offices in them”. The FSA found that Habib did not carry out adequate due diligence on higher risk customers and also failed to conduct enhanced due diligence on many accounts prior to transactions. Furthermore, according to the FSA, in two-thirds of the reviewed customer files, it was revealed that “the account had been inappropriately classified as normal risk”.

FSA acting director of enforcement and financial crime Tracey McDermott emphasised that “Habib’s belief that local knowledge of a country through a group office mitigated the higher money laundering risk posed by that country was entirely misconceived”. Ms McDermott added that “[i]t is a basic requirement that firms know their customers and understand the risks they pose. The requirement for enhanced due diligence recognises that some customers present a greater risk of money laundering than others and that firms therefore need to do more to identify, manage and control that risk”.

FSA’s media release (15 May 2012)
(Source: FSA)