The UK's Financial Conduct Authority has fined Canara Bank £896,100 and has prevented it from accepting deposits from new customers for 147 days. It says that when it asked the bank whether it was trying to find out whether its clients were PEPs by means of basic internet searches, the bank said it did not because it already knew who its clients were.

Between 26 November 2012 and 29 January 2016, according to the regulator, Canara failed to maintain adequate AML systems and to remedy identified weaknesses, despite having been notified of shortcomings in its AML systems and controls.

Canara is a universal Indian bank that was nationalised by the Government of India in 1969. It has an extensive private banking arm. It draws staff from India for three-year tours of duy to fill its senior positions in the UK. The FCA does not discourage this, but notes that in this case it was a contributing factor to the bank's failures to comply with the Money Laundering Regulations 2007 because of their ignorance of the British AML regime.

The FCA visited Canara in late 2012 and early 2013 and looked at its trade finance operations, finding many deficiencies that are not our concern here. Its complaints went unheeded, however, and therefore in September 2015 Canara was compelled to send the Prudential Regulation Authority (the other financial regulator in Britain's 'Twin Peaks' system) a "SYSC Compliance Findings Report" which raised some concerns among the regulators. They divined that Canara relied on its internal auditors for independent audit assurance but that the concurrent audits did not test compliance with British rules; that it had no compliance manual; that its compliance monitoring efforts were feeble; that committees of various types were not organised well enough; that it had not told the regulators enough about the methods it was using to spot risks and deal with them; that there were not enough job descriptions for several important 'approved persons' - the FCA's term for the firms and people it regulates - and none at all for some functions; and that the firm was not setting any "formal objectives for staff" - an astounding revelation that implies that it had not asked them to sign any contracts. The PRA asked the firm to hire a 'skilled person' (consultant) to produce a report on the progress of its compliance.

The follow-up "skilled person’s final report," dated 29 January 2016, listed deficiencies in Canara’s AML systems and controls, the overseeing and monitoring of those controls and the general running of Canara’s risk controls. It said that Canara’s organisational and corporate governance arrangements were ineffective; that its compliance and AML systems and controls were not appropriately designed and its AML risk-management arrangements were not "fit for purpose"; and that the firm did not understand or monitor risks and controls to do with money laundering. This final criticism included a comment that the firm could not spot unusual transactions or, indeed, the existence of politically exposed persons or PEPs on its books.

As a result, the FCA says that Canara UK went against its third "principle for business," which exhorts firms to take reasonable steps to organise their affairs responsibly and effectively, with adequate risk management systems. In 2012-16 the weaknesses that the regulator first indentified in its AML operations as regards trade finance were found to be "endemic" in its whole approach to money laundering and affected "almost all aspects of its business." The regulator was particularly cross about the firm's failure to correct the deficiencies it identified on its first visit.

Canara agreed to resolve the case and qualified for a 30% discount. Its recent clean-up operation seems to have found favour with the regulator, which comments that it has now "appointed a new MLRO [money-laundering reporting officer] who has previous AML experience," a searing indictment of the previous office-holder, whoever that may be. The FCA also notes that Canara has stepped up its AML training for new senior managers from India and is paying external consultants to help it complete its process of reform, which is evidently still not over.

As part of its first round of 'remediation,' Canara purchased the services of World-Check, the global 'know your customer' software giant, to check people's names against open-source lists of sanctioned people, PEPs and others. It had formed an AML committee, changed its account-opening forms, staged a training session and modified its risk-rating matrix. The 'skilled person' found that the bank had conducted World-Check searches on three out of four correspondent banks, but the files it kept on 75 transactions that it had reviewed contained evidence of only 29 World-Check searches.