Mon. Sep 26th, 2022

Regulation HK

Financial Regulator

HKMA Penalises Four Banks for AML Violations

4 min read

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ICBC (Asia), UBS, CCB (Asia) and CTBC Bank were fined a combined HK$44.2mn for deficiencies in customer monitoring, periodic reviews and due diligence.

The HKMA (Hong Kong Monetary Authority) has taken disciplinary actions against four banks for AML contraventions, imposing total penalties amounting to HKD 44.2 million (USD 5.7 million).

The actions follow investigations and a series of on-site examinations carried out by the HKMA on banks’ systems and controls for compliance with the AMLO (Anti-Money Laundering and Counter-Terrorist Financing Ordinance) after its enactment on 1 April 2012.

The common control lapses identified at the four banks relate to ongoing monitoring of customer relationships and deficiencies in conducting enhanced customer due diligence in high risk situations.

ICBC (Asia) Limited was penalised HKD 20.7 million for contravening nine AMLO provisions between April 2012 and September 2018, including by:

  • conducting periodic reviews of high risk customers with an “undue delay”; and failing to establish and maintain effective procedures for periodic reviews – attributed to a lack of an automated centralised record of customer information
  • failing to establish source of wealth and source of funds of customers and/or beneficial owners who were PEPs before establishing or continuing those business relationships; and failing to establish and maintain effective procedures for identifying PEPs
  • failing to include some originator’s information or complete addresses in payment messages of outgoing wire transfers due to a lack of effective procedures for identifying and handling incomplete information in payment messages
  • failing to obtain timely senior management approval for establishing or continuing business relationships with customers in high risk situations
  • being unable to locate and provide the HKMA with some customers’ risk assessment forms

ICBC (Asia) is required to submit to the HKMA a report prepared by an independent external advisor assessing the sufficiency and effectiveness of the remedial measures taken to address the contraventions and deficiencies.

UBS AG, Hong Kong Branch, was penalised HKD 9 million for contravening four AMLO provisions between April 2012 and October 2015, including by:

  • failing to establish and maintain effective procedures for conducting periodic reviews of customer accounts – with deficiencies that included system errors, failure to set out specific trigger events for periodic reviews, and issues related to staff communication and implementation of the periodic review process
  • failing to carry out due diligence and conduct timely periodic reviews on customers after suspicious transactions had already taken place and STRs already filed; and failing to terminate high risk business relationships “as soon as reasonably practicable”

UBS has completed periodic reviews on customers as required and implemented policies to specify trigger events in respect of CDD reviews.

CCB (Asia) Corporation was penalised HKD 8.5 million for contravening four AMLO provisions between January 2013 and June 2018, including by:

  • failing to conduct annual reviews for high-risk customers, conduct timely periodic reviews upon trigger events for some customers, examine the background and purpose of complex and unusual transactions, and complete investigations in a timely manner
  • investigating only a small proportion of alerts generated by the bank’s transaction monitoring system, only focusing on alerts that met restrictive selection criteria
  • failing to obtain timely senior management approval to continue business relationships in high risk situations
  • being unable to provide the HKMA with reviewers’ records for some customers

CCB (Asia) is required to submit to the HKMA a report prepared by an independent external advisor assessing the sufficiency and effectiveness of the remedial measures taken to address the contraventions and deficiencies.

CTBC Bank, Hong Kong Branch, was penalised HKD 6 million for contravening three AMLO provisions between April 2012 and September 2014, including by:

  • failing to establish and maintain effective procedures to ensure the customer information was up-to-date and relevant – i.e. the bank was using a “mailer approach” for periodic reviews, through which customers were issued letters enquiring about changes in their information, and where all no-responses were treated as there being no change, without follow-up or verification
  • failing to take enhanced due diligence measures in respect of certain high risk customers

CTBC has taken remedial and enhancement actions to address the deficiencies identified by the HKMA.

“The identified deficiencies in the four cases occurred in a period following the commencement of the AMLO when industry understanding and experience were less mature,” said Ms Carmen Chu, executive director for enforcement and AML at the HKMA.

“Since then, significant progress has been made by the industry, including the banks concerned, in enhancing financial crime compliance capabilities, with attention being given to improving processes, controls, and staffing.”

Ms Chu added that other banks should make reference to the four cases as they review their data quality and transaction monitoring system effectiveness, and take appropriate risk mitigating measures on an ongoing basis.

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