FSA publishes results of money laundering investigation

The investigation, which has taken three months, focused on the anti-money laundering controls at 23 banks in the UK where accounts linked to Abacha family members and close associates were identified. The investigation found that 15 of the banks had significant control weaknesses. Eight of these banks have corrected the weaknesses since the accounts were opened through strengthening their anti-money laundering controls.

Phillip Thorpe, Managing Director of the FSA, said:

The extent of the weaknesses identified is frankly disappointing. When we launched the investigation we said that we would order banks to take immediate action if problems were found. We are ordering the 7 banks with significant control weaknesses to rectify the problems our investigation discovered, and are setting them strict deadlines by which to correct these failings. Potential breaches of the Money Laundering Regulations are also being discussed with the appropriate law enforcement authorities.

He also warned that when the FSAs new anti-money laundering enforcement powers come into effect later this year, they will be rigorously applied. He said:

When the Financial Services and Markets Act comes into effect we will have a statutory objective to help reduce financial crime. New powers will enable us to deal more effectively with any failures in anti-money laundering systems and controls. The new tools available to us will include the imposition of civil fines and public censure on the outcome of disciplinary proceedings. It is imperative that standards of compliance with UK anti-money laundering requirements are high if London is to maintain its reputation for clean financial markets.

The FSA investigation identified 42 personal and corporate account relationships linked to Abacha family members and close associates in the UK. These accounts were held at 23 banks which included UK banks and branches of banks from both inside and outside the European Union.

In total, turnover on the 42 accounts amounted to US$1.3 billion for the four years between 1996 and 2000. The US$1.3bn relates only to the turnover on the accounts over this period; it does not necessarily represent the proceeds of crime or the amount of money received into the UK.

Some 98% of the US$1.3bn went through the 15 banks with significant control weaknesses. The FSA found that a number of the banks had reported suspicions to the National Criminal Intelligence Service (NCIS) on a timely basis.

The following deficiencies were found at one or more of the 15 banks:

• Inadequate senior management oversight of the account opening process for customers who could be classified as higher risk;
  
• Weaknesses in the verification of the identity of beneficial owners of companies;
  
• Over reliance on introductions by existing customers;
  
• Inadequate understanding of the source of the customers wealth;
  
• Shortfalls in following industry guidance on reporting suspicious transactions to the National Criminal Intelligence Service;
  
• Weaknesses in record retrieval and retention.

The FSA is also taking the following action:

• An FSA Task Force has been established to co-ordinate the implementation of immediate remedial action programmes covering the 7 banks where current failings were identified at the time of the investigation. These banks are being set strict deadlines by which to rectify the problems.
  
• Potential breaches of the Money Laundering Regulations are being discussed with the appropriate law enforcement authorities.
  
• The FSA is participating with key international regulators in developing guidance for financial firms on handling accounts of high profile political figures.
  

Notes for editors

1. The Financial Services and Markets Act, due to come into effect later in 2001, gives the FSA four statutory objectives, including helping in the reduction of financial crime. The three main areas in which the FSA will play a significant role in this are: criminal market misconduct (eg insider dealing); fraud or dishonesty; and money laundering.

2. Under the Financial Services and Markets Act 2000, the FSA will have the power to make and enforce regulatory Rules on money laundering. The proposed Rules will set standards for anti-money laundering systems and controls in FSA-regulated businesses. The essence of these systems and controls are: to take care when commencing business with a new customer; to be alert to the possibility of money laundering by a customer or a prospective customer; where suspicions of money laundering arise, to communicate them to the criminal authorities; to keep records which may prove significant for subsequent criminal investigations and prosecutions; to ensure senior management oversight and control; to secure and maintain the informed participation in these systems of all relevant employees of the business.

3. The current responsibility for prosecuting breaches of the Money Laundering Regulations 1993 lies with the UK criminal authorities. Once the Financial Services and Markets Act is brought into force, the FSA will have the power to prosecute breaches of the Money Laundering Regulations 1993. The FSA will adopt a parallel but separate approach to the relationship between the Money Laundering Regulations 1993 and the Money Laundering Rules.

4. Banks are required to report any suspicions of money laundering to the National Criminal Intelligence Service.

5. The $1.3 billion represents the funds identified by the FSA as turnover on the accounts connected to General Abacha, family members and close associates. The FSA has not carried out any asset tracing exercise to determine how much, if any, of these funds represent proceeds of crime, nor is it the FSAs role to do that. The FSAs role is to monitor the anti-money laundering systems and controls at banks. The FSA does not have the power to freeze assets that may be suspected as being the proceeds of crime.

6. The FSA Task Force is being led by the FSAs Enforcement Division and includes staff from across the FSA supervisory divisions with responsibility for the 7 banks involved. The FSA is already in discussions concerning the remedial programmes in some cases. The Task Force will oversee the remedial action programmes and is expected to commission forensic accountants, probably from one or more of the Big Five accountancy firms, specialising in analysis of anti-money laundering controls. The cost of the Task Force review will be borne by each of the banks concerned and will vary depending on the size of the bank and the scale of the work involved.

7. The FSA cannot, under the Banking Act 1987, identify the individual banks concerned. Under the Financial Services and Markets Act 2000, the FSA will be able to publicise the outcome of disciplinary proceedings.

8. The FSA will incorporate the findings of the investigation into the work of its anti-money laundering theme, which is looking more generally at how the FSA will take forward the responsibilities it is given in seeking to combat money laundering under the Financial Services and Markets Act 2000. Reflecting the findings of this investigation, and other work the theme has undertaken, the FSA will liaise with the industry through the Joint Money Laundering Steering Group whether the Guidance Notes need to be revised in a number of areas.

9. The FSAs three other objectives are: maintaining confidence in the financial system; promoting public awareness of the financial system; and securing the appropriate degree of protection for consumers.

10. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.