On May 15, the UK Financial Services Authority (FSA) announced that it had fined Habib Bank AG Zurich (Habib Bank) £525,000 (approximately $830,000) and Syed Itrat Hussain (Hussain) its former Money Laundering Reporting Officer (MLRO) £17,500 (approximately $28,000) for failure to take reasonable care to establish and maintain adequate anti-money laundering (AML) systems and controls.
The FSA stated that the AML failings at Habib Bank lasted almost three years and represented an unacceptable risk of laundering money. Approximately 45% of Habib Bank’s customers were based outside the UK and about half of its deposits came from jurisdictions which, according to independent international organizations, had less stringent AML requirements or were perceived to have higher levels of corruption than the UK.
The FSA’s investigation identified that between December 2007 and November 2010, Habib Bank failed to establish and maintain adequate controls for assessing the level of money laundering risk posed by its customers. In particular, the high risk country list which it maintained excluded certain high risk countries (Pakistan and Kenya) on the basis that Habib Bank had group offices in them. In the FSA’s view Habib Bank’s local knowledge of these countries did not negate the higher risk of money laundering they presented. The FSA also found that Habib Bank failed to conduct adequate enhanced due diligence in relation to higher risk customers.
The FSA reviewed 68 Habib Bank customer files and identified specific significant AML failings in two thirds of the files that they reviewed. Each had one or more of the following significant AML failings:
- the account had been inappropriately classified as normal risk;
- the enhanced due diligence conducted was inadequate (because insufficient information or supporting evidence had been obtained); or
- no enhanced due diligence had been conducted before transactions occurred through the account.
As MLRO, Hussain was responsible for the oversight and establishment of the Bank’s AML systems and controls. The FSA imposed a financial penalty on Hussain for his personal failure to ensure that adequate AML systems and controls were maintained.
Tracey McDermott, FSA’s acting director of enforcement and financial crime, said “Habib’s failings were unacceptable. Habib’s belief that local knowledge of a country through a group office mitigated the higher money laundering risk posed by that country was entirely misconceived.”
Habib Bank and Hussain agreed to settle at an early stage and therefore qualified for a 30% reduction in the financial penalty imposed.