Money Laundering Bulletin

Turkish Bank (UK) Ltd (TBUK) breached the Money Laundering Regulations 2007 around correspondent banking relationships for more than two and a half years, according to the UK Financial Services Authority, which has fined it UK£294,000.

If one needed a case study on how not to operate anti-money laundering controls in a major international banking group the US Senate Permanent Subcommittee on Investigations delivered it on 16 July in a thumping 340-page critique of disastrous failings at HSBC over many years. [1] The report catalogues business relations with drug traffickers, US-sanctioned entities and possibly terrorist financiers. HSBC CEO Stuart Gulliver’s apology and the resignation of David Bagley as head of group compliance may not be enough to placate shareholders, who are looking at a fine that could top $1 billion and even removal of the bank’s US licence.

Standard Chartered is to pay $340m to the New York Department of Financial Services (DFS) [1] over the State regulator’s findings that it stripped and “repaired”, that is altered originator details in wire transfers to disguise Iranian payments worth at least $250bn between 2001 and 2007. In an order notice issued on 6 August 2012 [2], the DFS demanded that the UK group’s US subsidiary, Standard Chartered Bank (SCB), which it called a “rogue institution”, demonstrate why its licence to operate in the State of New York should not be revoked. SCB currently clears approximately $190bn per day for international clients. The bank was summoned to appear at the regulator’s office on 15 August but Peter Sands, Standard Chartered Group CEO, pre-empted the meeting by flying in to negotiate terms.

Timon Molloy, Editor (timon.molloy@informa.com)

Despite the US government’s great need for new tactics to combat drug cartel-related money laundering activities, recent budget cuts are limiting the potential development of highly useful tools in this fight – including a bulk currency detector able to sense large quantities of money hidden in speeding vehicles. Pacifica Goddard reports.

Not all politically exposed persons (PEPs) are corrupt, the Financial Action Task Force (FATF) stresses at the outset of its June 2012 report on ‘Specific Risk Factors in Laundering the Proceeds of Corruption’, which focuses on abuse of public office for private gain. [1] Nevertheless, Recommendation 12 requires enhanced ongoing monitoring of business relationships with foreign PEPs (and higher risk business relationships with domestic PEPs): how enhanced will depend on “numerous factors”, it says, like country of origin, industry/sector and products and services used, also the individual’s position, why they want the account and whether transactions through it accord with the explanation given. The report, which aims to be practical - it includes real-life case studies - explores both the characteristics of corrupt money and signposts useful sources to assist its detection.

One year on from the UK Financial Services Authority’s excoriating review of banks’ management of high money laundering risk situations [1], the regulator reports equally miserable failings in UK retail banks’ defences against investment fraud and discovers further severe anti-money laundering breaches.

Two and half years after the initial call for evidence and two consultations and a rigorous interrogation of the red tape impact later, the UK Government has published changes to the Money Laundering Regulations 2007 (MLR).

In Shah & Anor v HSBC Private Bank (UK) Limited [2012] EWHC 1283 (QB), the High Court dismissed Mr Shah’s US$300m action against HSBC for losses that he argued were caused by delays in executing his payment instructions. Those delays were due to HSBC raising internal suspicions over Mr Shah’s source of funds and filing a Suspicious Activity Report (SAR) and seeking the consent of the Serious and Organised Crime Agency (SOCA) to proceed with the transaction. This decision of Mr Justice Supperstone has been widely welcomed by money laundering compliance professionals at financial firms. Ben Ko and Charles Thomson of Baker & McKenzie summarise the history of this long-running litigation, examine the key findings of the judge and set out practical steps firms can take in light of the decision.

The Financial Action Task Force has many functions, writes Sue Grossey, but one of its most valuable is the in-depth research that its experts do into money laundering – which crimes lead to it, how it is done, and who is taking it seriously (and, perhaps more importantly, who is not). After an entirely understandable recent preoccupation with corruption, the FATF’s researchers have returned to what I think they do best: bringing to our attention areas of criminal activity that we may have discounted or even overlooked entirely. They did this in July 2011 with their gripping report on “Organised Maritime Piracy and Related Kidnapping for Ransom” [1], and they have done it again in July 2012 with the 78-page report entitled “Illicit Tobacco Trade” [2].