Author: Dr. Angelika Hellweger 26 October 2022
The Financial Conduct Authority (FCA) announced that it had fined specialist mortgage lender Gatehouse Bank for significant weaknesses in its financial crime systems and controls.
Gatehouse, which offers residential and buy-to-let loans and Sharia-compliant savings products, was fined £2,263,084; although this was reduced by 30% to £1,584,100 because it agreed to settle at an early stage of the investigation.
The FCA stated that Gatehouse had serious shortcomings in its anti-money laundering (AML) policies and procedures from 9 June 2014 to 5 July 2017; breaching provisions of the Money Laundering Regulations 2007.
Gatehouse opened an account for a company based in Kuwait to pool the funds of the business’ customers for real estate investment. The FCA said that the bank "relied" on the business to carry out diligence on the investors. But, according to the FCA, a large number of the investors were “high-risk, high-net-worth customers" and Gatehouse "took inadequate measures" to confirm the quality of the company's AML checks.
Gatehouse also failed to ensure the company collected information about where the funds were sourced from, which is a requirement under the bank's AML policies. The FCA said that Gatehouse accepted $62 million into an account linked to the company and its clients "without properly vetting the funds for money laundering risk".
The case is a clear reminder that it is of the utmost importance that financial institutions ensure they verify the identity of customers and adequately scrutinise the source of their funds. Customers who are either PEPs (politically exposed persons) or who are domiciled in high-risk jurisdictions (where this is a greater likelihood of money laundering and / or terrorist financing) should be made to undergo an enhanced due diligence process.
Financial institutions need to monitor customer relationships on an ongoing basis, with all information kept up to date and the level of monitoring reflecting the financial crime risk. It is also important for internal control systems to be adapted in such a way that any shortcomings in the know-your-customer due diligence process are immediately detected. This will involve having enough staff in the compliance department to run such due diligence checks.
Angelika is a specialist in international, high-level economic crime investigations and large-scale commercial disputes. She has widely-recognised expertise in representing corporates and conglomerates in Europe, the Middle East, Africa and United States.