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Bank of Ireland fined €3.15 million for AML failures

Chris Hamblin, Editor, London, 1 June 2017

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The Central Bank of Ireland has fined the Governor and Company of the Bank of Ireland in respect of 12 anti-money laundering and terrorist finance compliance failures. The bank has admitted guilt.

The bank’s transgressions broke the Criminal Justice (Money Laundering & Terrorist Financing) Act 2010 and occurred for an average of more than three years after the enactment of the Act in July 2010.

The Central Bank identified significant failures in the BOI’s anti-money-laundering and anti-terrorist-finance controls, policies and procedures which included the following.

Risk assessment: failure to assess ML/TF risks specific to its business and the relevant mitigating systems and controls. For the year 2012, the firm’s risk assessment was inadequate as the risk rating for certain categories of customers, products and channels was not included in every instance although that information was identified as necessary for the evaluation of risk for those categories. Furthermore, for the years 2012 and 2013, the BOI did not put geographical and sectoral risks in its risk assessments.

Suspicious transaction reports: failure to report six suspicious transactions to the police and the Revenue Commissioners without delay. Under section 54 CJA, firms are required to have policies and procedures which address their obligation to identify, investigate and report suspicious transactions as soon as practicable. The bank failed to have adequate checking processes for internal escalation and submission of suspicious transaction reports in circumstances where BOI’s group internal audit function indicated such deficiencies. The BOI failed to ensure that relevant senior managers received adequate ‘management information’ on the volume and duration of alerts awaiting investigation.

Correspondent banking: failure to “conduct enhanced customer due diligence” (i.e. deploy the most severe know-your-customer controls) on one correspondent bank situated outside the European Union, of which Ireland is a province. Section 38(1) of the Act obliges every firm to do this before starting a correspondent banking relationship with a credit institution situated outside the EU. This is because, in the central bank’s words: “Correspondent banking poses a higher ML/TF risk due to the limited information on the nature and purpose of account transactions that is usually available to the domestic bank.”

The Central Bank also identified offences against the Act in relation to the BOI’s trade finance business, CDD measures and its reliance on third parties to conduct CDD. The trade finance failures need not concern us here. On the CDD front, it also criticised the BOI for providing banking services to one non-resident customer who was a ‘politically exposed person’ or PEP without taking ‘extra due diligence’ or EDD measures as set out in s37(4)(b) CJA, which required it to determine the customer’s source of funds and source of wealth.

The BOI also failed to follow policies and procedures, under s54, to ask new non-resident PEP customers for information and supporting documents in respect of sources of funds and sources of wealth, and to keep the process under review. It did not have any procedures to help it keep records of exceptions to the standard KYC process. It also failed to set up procedures, under s54, to comply with s33(8) in cases where customers had not provided the required KYC information or documents.

Section 40(4) of the Act permits a firm to rely on a third party to conduct CDD/KYC under certain conditions. The firm must have an arrangement in place which stipulates that, on request, the third party will forward the documents or information obtained when conducting CDD to the firm as soon as practicable. This did not happen in the case of 178 corporate customers.

The Central Bank is cracking down on AML/TF failures and this is its third enforcement action in the campaign. The BOI is one of the largest banks in Ireland with more than 250 branches. It received an undisclosed discount on its fine for co-operating with the enquiry at an early stage.

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