The Financial Conduct Authority (FCA) has fined Commerzbank AG (London Branch) £37,805,400 over anti-money laundering (AML) failures between October 2012 and September 2017
Commerzbank London was aware of these weaknesses and failed to take reasonable and effective steps to fix them despite the FCA raising specific concerns about them in 2012, 2015 and 2017.
These weaknesses also persisted during a period when the FCA was publishing guidance on steps firms could take to reduce financial crime risk as well as taking enforcement action against a number of firms in relation to AML controls. Despite these clear warnings, the failures continued.
Firms operating in the UK, including branches of overseas firms, must take reasonable care to organise and control their affairs responsibly and effectively, and to establish and maintain an effective risk-based AML control framework.
FCA executive director of enforcement and market oversight, Mark Steward, said: 'Commerzbank London’s failings over several years created a significant risk that financial and other crime might be undetected.
‘Firms should recognise that AML controls are vitally important to the integrity of the UK financial system.’
Three AML failings were found
The FCA’s investigation identified three failings, including Commerzbank London’s failure to conduct timely periodic due diligence on its clients, which resulted in a significant number of existing clients not being subject to timely know-your-client checks.
By 1 March 2017, 1,772 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, which was not adequately controlled or overseen and which became 'out of control' by the end of 2016.
The bank also failed to address long-standing weaknesses in its automated tool for monitoring money laundering risk on transactions for clients.
For example, in 2015 Commerzbank London identified that 40 high-risk countries were missing, and 1,110 high-risk clients had not been added, to the transaction monitoring tool; and to have adequate policies and procedures in place when undertaking customer due diligence on clients.
Commerzbank therefore breached Principle 3 of the FCA’s Principles for Businesses, which requires firms to have adequate risk management systems in place.
Stephen Baker, senior partner at law firm Baker & Partners, said: ‘Today’s announcement falls into a history of regulatory breaches by Commerzbank. Commerzbank entered into a deferred prosecution agreement with the US authorities in March 2015.
‘The Bank had by that stage accepted that it would pay some $USD 1.45bn (£1.15bn) to regulators and law enforcement authorities in forfeiture orders, fines and penalties. These included fines for anti-money laundering failures including failures to make suspicious activity reports and monitor correspondent accounts properly.’
Complying with AML controls
Commerzbank London has undertaken a significant remediation exercise to bring its AML controls into compliance.
The FCA claim that a Skilled Person has been testing the effectiveness of these enhancements, and their work is now complete.
It has also conducted an extensive look-back exercise to identify suspicious transactions during the period in question.
Baker added: ‘In May 2020 the National Crime Agency (NCA) announced the forfeiture of £6.4m still held in an account named The Albatross Limited which had been held for years at Commerzbank London.
‘That account appears to have been used to launder money corruptly obtained in Liberia. The bank drew the account to the attention of the NCA.’
Commerzbank London also voluntarily implemented a wide-ranging business restriction, which included temporarily stopping taking on new high-risk customers and suspending all new trade finance business activities.
Commerzbank London agreed to resolve the matter at an early stage of the investigation and therefore qualified for a 30% discount. Without the discount, the financial penalty would have been £54,007,800.
Nick Bayley, managing director and head of UK regulatory consulting at Duff & Phelps said: ‘This action by the FCA reinforces the level of work required by firms to meet their AML obligations.Regulatory penalties require a devotion of significant management time and financial resources over many years to remediate the issues raised. This “hidden cost” is something one can often forget when looking just at the fine amounts imposed by the regulator.
'It is important that firms do not underestimate the level of work required to meet AML regulatory obligations.’