EFG is the UK private banking subsidiary of the EFGI Group, a global private banking group, based in Switzerland. EFG provides private banking and wealth management services to high net worth individuals including some from overseas jurisdictions recognised as presenting a higher risk of money laundering and/or bribery and corruption. At the end of 2011 around 400 of EFG’s 3,342 customer accounts were deemed by the firm to present a higher risk of money laundering or reputational risk, and of these 94 were held by politically exposed persons (PEPs).
As part of a thematic review of how UK banks were managing money laundering risk in higher risk situations, the Financial Services Authority (FSA) visited EFG in January 2011. That visit and further investigation caused serious concern to the FSA. The investigation found that EFG had not fully put its AML policies into practice. Of particular concern was that 17 of 36 reviewed customer files, opened between December 2007 and January 2011, contained customer due diligence that highlighted significant money laundering risks, but insufficient records of how the bank’s senior management had mitigated those risks.
Of these 17 files, the FSA found that the risks highlighted in 13 files related to allegations of criminal activity or that the customer had been charged with criminal offences including corruption and money laundering.
For example in one account, EFG’s due diligence highlighted that a prospective client had acquired their wealth through their father, about whom there were allegations of links with organised crime, money-laundering and murder. However there was insufficient information on file to explain how the bank concluded that this risk was acceptable or how it was mitigating the risks.
EFG also failed to appropriately monitor its higher risk accounts. Of the 99 PEP and other high risk customer files reviewed by the FSA, 83 raised serious concerns about EFG’s monitoring of the relationship.
As a result of these failures, EFG breached FSA Principle 3, requiring it to take reasonable care to organise and control its affairs responsibly and effectively.
Tracey McDermott, head of enforcement and financial crime, said:
"One of the FCA's objectives is to protect and enhance the integrity of the UK financial system. This includes ensuring money in the UK system is clean.
"Banks are the first line of defence to make sure that proceeds of crime do not find their way into the UK. In this case while EFG’s policies looked good on paper, in practice it manifestly failed to ensure that it was addressing its AML risks. Its poor implementation of its agreed policies risked the bank handling the proceeds of crime. These failures merited a strong penalty from the FCA.
"Firms that accept business from high risk customers must have systems, controls and practices to manage that risk. The FCA will continue to focus on high risk customers and business."
EFG settled at an early stage of the investigation and qualified for a 30% discount on its fine. Without the discount the fine would have been £6 million.
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