EU’s AML laws published, HSBC’s glaring failings over €300M in PEP transactions, lessons from Credit Suisse New York and latest Wolfsberg advice

From Paul O'Donoghue at AMLi

EU’s AML laws published, HSBC’s glaring failings over €300M in PEP transactions, lessons from Credit Suisse New York and latest Wolfsberg advice

It’s already a busy week in the world of AML, particularly in Europe. Today the EU finally published the laws surrounding the new AML Regulation and Directive, which will oversee bank supervision and national FIU operations.

On Tuesday, the Swiss regulator no FINMA published a damning assessment of HSBC’s oversight of some €300M in transactions over 10 years involving tow PEPs which went without any proper oversight. The issues at the heart of the problem are some years ago, nonetheless it is hard to comprehend the sheer scale of the failings.

AMLA LAWS PUBLISHED

This morning the EU published the laws covering AML in its official journal. Of major interest are the criteria for directly supervising 40 banks in the Union.

According to the legislation, the Authority (AMLA) should supervise obliged entities in the financial sector having a high risk profile where such entities operate in at least six Member States whether through establishments or under the freedom to provide services within the Union. In such cases, supervision at Union level by the Authority would bring significant added value compared to fragmented supervision between home and host Member States by eliminating the need for national supervisors of home and host Member States to coordinate and align the measures taken with regard to various parts of the same group.

In order to ensure the homogeneous supervision of groups and a more granular analysis of the risk of the cross-border entities assessed, the assessment of the ML/TF risk of obliged entities which are part of a group should always be done at the level of the group, resulting in a single group-wide risk score to be considered for the purposes of the selection. “The entire group should then be considered as the selected obliged entity. While the exact number of entities that could meet the risk and cross-border activities criteria for direct supervision varies and depends on their business model and money-laundering risk profile at the moment of the assessment, it is necessary to ensure an optimal, progressive and dynamic repartition of competences between the Union and national authorities in the first phase of the existence of the Authority,” says the text.

To ensure a sufficient number and adequate range of types of high-risk groups and entities that are supervised at Union level, AMLA “should have sufficient resources to simultaneously supervise up to 40 groups and entities, at least during the first selection process. In the event that more than 40 entities would qualify for direct supervision based on their high risk profile, the Authority should select from among them the 40 entities operating, whether through establishments or under the freedom to provide services, in the highest number of Member States.”

Moreover, the agency will have the power to remove members of bank management, the legislation says. "The Authority should have the power to require actions, internal to an entity, to enhance the compliance of obliged entities with the AML/CFT framework, including reinforcement of internal procedures and changes in the governance structure, going as far as removal of members of the management body, without prejudice to the powers of other relevant supervisory authorities of the same selected obliged entity," according to the new law.

On-site inspections should also be a regular feature of supervision and performed by dedicated teams, the law states.

It will also have the power to seek search warrants. "If a specific type of on-site inspection, for instance with respect to a natural person where the business premises are the same as the person’s private residence, requires authorisation by the national judicial authority, such authorisation should be applied for by the Authority," according to the legislation.

HSBC carpeted

HSBC: Let’s talk about bank customers. And why it’s probably important for lenders to keep a watchful eye at ones who are moving around hundreds of millions of dollars. That might already seem obvious to readers. And more obvious still would be the need to take a closer look at such customers if they were politically connected.

However, at #HSBC the lender’s Swiss private banking arm has just been called out by the country’s FINMA regulator for alarmingly failing to recognise issues in a series of transactions involving $300 million moving to and from Lebanon. Despite the clear high risks associated with these dealings, HSBC fell down in numerous oversight areas - for more than a decade. Now the bank has been barred from taking on new PEP customers over the AML failings. We have more detail here.

International Anti-Financial Crime Summit 2024 takes place in London on October 9 next. The summit will hear from top banking, regulator, fintech and law enforcement leaders from the UK, EU and North America. The conference is designed for AFC decision-makers motivated by a desire to be professionally successful. Are you attending? Book your place here: International Anti-Financial Crime Summit 2024

ALSO IN THE HEADLINES

CREDIT SUISSE: Staying with regulatory failings, Credit Suisse’s New York operation got in hot water in 2020 when it was judged to not have enough oversight of its own AML programs. Many of the responsibilities were being handled by various service companies and the same old problems popped up - issues with customer due diligence, audits and suspicious activity. The company has now struck a deal with New York officials to improve its AML processes. Here AMLi columnist Sarah Beth Felix gives a rundown of some of the most important points from that agreement.

WOLFSBERG: To round off the point on customer due diligence, the #Wolfsberg Group outlines some of the reasons why banks can sometimes be opposed to tighter oversight. The UK is looking at bringing in tighter rules around enhanced due diligence (EDD). It is currently expected that financial institutions do this when dealing with customers located in regions on FATF’s ‘blacklist’. But FATF ‘grey list’ is more of a grey area. The UK is considering making #EDD a requirement for customers in these jurisdictions as well, but the Wolfsberg Group has argued this would put too much of a burden on lenders. Find out why on AMLintelligence.com

LAW & ORDER

SINGAPORE: A case involving 10 foreigners laundering $2.2 billion has captivated Singapore since the gang was arrested last year.

Last week Dubai property broker Su Jianfeng was sentenced to 17 months in jail for his part in the scheme.

He was the last of the group of 10, which laundered the proceeds of online gambling through Singapore, to be sentenced to jail.

Wasting no time, Singapore officials have been deporting members of the gang, with three more ejected from the country over the weekend.

BILLIONAIRE: Also very much in the news is Alisher Usmanov. The Uzbek-Russian billionaire has filed a lawsuit against the bank UBS Europe in Frankfurt, claiming anti-money laundering reports unfairly prompted a regulator investigation of his affairs. Usmanov has faced various difficulties in recent years and is one of the most prominent figures on the European Union sanctions list. However, his lawyers claim UBS Europe Frankfurt went too far and are now seeking damages from the lender.

￡2M A MONTH: Finally, to finish on an unqualified success story for law enforcement. A Manchester-based organised crime group was taking in incredible amounts of money, collecting approximately ￡2 million per month from the sale of class A drugs.

However, the operation has now been smashed by police, with four of the principal organisers sentenced to a cumulative 36 years in prison.

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Have a great Wednesday ??

Stephen and the team at AMlintelligence.