The FCA and money laundering failings

The Financial Conduct Authority has censured a bank’s ex-CEO over money laundering compliance shortcomings. Angelika Hellweger of Rahman Ravelli details the case and the issues involved.

The former head of a bank has been publicly censured for money laundering failings.

The Financial Conduct Authority (FCA) took the action against Mr Mohammad Ataur Rahman Prodhan, who had been Chief Executive Officer of Sonali Bank (UK) Limited (SBUK).

Mr Prodhan was the senior manager at SBUK with responsibility for establishing and maintaining effective anti-money laundering (AML) systems and controls. But the FCA said that between June 2012 and March 2014, he failed to take reasonable steps to assess and mitigate the AML risks caused by a culture of non-compliance among the bank’s staff. He also did not ensure that there was a clear allocation of responsibilities in SBUK’s branches or properly manage the role of money laundering reporting officer (MLRO) within the bank.

These failings led to staff not understanding the need to comply with AML requirements and a lack of proper compliance monitoring of staff. The MLRO was ineffective in monitoring compliance, leading to systemic failures in systems and controls throughout the business.

Censure

The FCA initially decided to impose a financial penalty of £76,400 on Mr Prodhan in May 2018. He initially sought to have this case considered by the Upper Tribunal, which can independently review FCA decisions. But Upper Tribunal proceedings were delayed by the coronavirus pandemic and limitations on Mr Prodhan travelling to the UK from Bangladesh, where he lives. 

The FCA said the public censure – which Mr Prodhan agreed to accept - was an appropriate resolution of the case, considering these difficulties. 

Mark Steward, executive director of enforcement and market oversight at the FCA, said: "While a financial penalty was appropriate in this case, prolonged litigation to enforce a penalty that is unlikely to be paid against a person who may not be able to travel to the UK to explain himself in person to the Upper Tribunal is neither practical nor fair." 

Weaknesses

The FCA had imposed a £3.3 million fine on the bank in October 2016 for weaknesses in its AML controls. It also prevented the bank accepting deposits from new customers for almost six months and fined its MLRO £17,900 and banned him from such activities.

At the time, the FCA said the bank had ignored warnings about its weaknesses and had breached two of the regulator’s principles for businesses: it had not taken reasonable steps to organise its affairs responsibly and had failed to notify the regulator of an allegation of significant fraud while it was under investigation.

Controls

The action against SBUK highlights the importance of firms ensuring that their financial crime systems and controls are in order. 

If they have not done so already, firms should be assessing their financial crime risks and putting in place systems and controls to mitigate and monitor those risks across their business. All businesses subject to AML regulations should have in place a suitable programme for AML and counter-terrorism financing (CTF). 

They also need to be proactive in ensuring that their financial crime systems and controls are monitored and updated on an ongoing basis, taking account of issues identified internally and all relevant external factors.

Such an approach has to involve:

• Hiring the “right” people: Compliance departments (and businesses as a whole) have to employ appropriately-qualified staff with the right knowledge, who have adequate decision-making powers to ensure the AML compliance programme functions effectively.
• Reporting suspicious activity: Businesses should submit suspicious activity reports (SARs) to their respective regulator if they detect potential money laundering.
• Employee training: Banks have a responsibility to make sure all employees are fully trained - and that such training is ongoing - when it comes AML and CFT requirements, and that staff know what to do if they suspect any suspicious activity.
• Utilising new technologies: To prevent money laundering and meet their AML obligations, banks and other financial institutions should be identifying and adopting new technologies that can help streamline compliance processes.