EU update – June 2020

UK regulator issued second largest fine for AML failings. 

The FCA has fined Commerzbank London £37,805,400 over anti-money laundering failures between 2012 and 2017. The original fine was reduced from £57,007,800 as Commerzbank agreed to resolve the matter at an early stage

Commerzbank breached Principle 3 of the FCA’s Principles for Businesses, which requires firms to have adequate risk management systems in place.  Included in this breach was the requirement “to have adequate policies and procedures in place when undertaking customer due diligence on clients”

By 2017, nearly 1800 clients were overdue updated due diligence checks. A material number of these clients were able to continue to transact with the bank’s London branch due to the implementation of an exceptions process

The regulator said the bank had failed to put AML controls in place over a period of five years, despite three separate warnings from the regulator

Firms operating in the UK, including branches of overseas firms, must take reasonable care to maintain an effective risk-based AML control framework and to maintain and document an effective AML Programme.

Solicitors Regulatory Authority to ramp up AML Policy reviews

In an effort to combat misconduct potentially leading to money laundering and terrorist financing (ML/TF), the SRA will test a sample of firms’ anti-money laundering policies every month.  The regulator has identified money laundering as a priority risk amid concerns that solicitors, even unknowingly, are supporting organised crime such as terrorism and drug trafficking.

A review in 2019 found that more than a third of firms had not made a full risk assessment, where half of the reports concerning money laundering involved a firm not having carried out proper due diligence on a client or their funds. The Financial Action Task Force (FATF) has said in the past it is concerned about a relatively low number of suspicious activity reports filed by solicitors and other legal professionals, however firms will not begin to act until pressure from the regulators is applied for them to do so.

Cyprus is introducing tougher anti-money laundering (AML) for “golden passports”

Cyprus are now closer to taking tougher anti-money laundering (AML) checks in its “golden passport” under which it gives citizenship to foreign investors paying large sums into the real estate now other markets.

New Measures will not only make it tougher to obtain citizenship, with an annual cap on the number of passports granted, but a new clause will also make it easier for investors who are either involved in or have been convicted of a serious crime to have their Cypriot citizenship, and therefore EU passport revoked.

The EU have been open about their concerns on citizenship by investment schemes for a number of years.  These schemes have been used as a vehicle of recovery from financial struggles or crisis for member states. Cyprus’ scheme has brought in nearly 8 million Euros in revenue since its introduction following the 2013 financial crisis.

The concerns over Cyprus’ “Golden Passport” were reinforced when the government sort to revoke the passports of 26 foreign investors in November of last year, including nine Russians, 5 Chinese and the Malaysian multi-billionaire, Jho Low, who is allegedly involved in the multi-billion-dollar 1MDB scandal.

Whilst these changes may mitigate some of the risk for Cyprus, all the while these schemes exist, and exist in various forms and with differing requirements enticing the super rich, the EU as a whole will still be vulnerable to such schemes being used as a backdoor into the EU economy for criminals to launder proceeds of crime or for others to evade tax.

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