AML inadequacies can lead to ‘eye-watering’ fines for banks

By Puja Sharma

Almost half (45%) of the banking and finance firms who responded disclosed that they did not identify the ultimate beneficial owners of the new companies they dealt with – a loophole often exploited by money laundering criminals, who create complicated corporate infrastructures to hide the real recipients of criminal activity

A “worrying” number of banks and financial institutions are still risking multi-million-pound fines like the £107m penalty issued to Santander at the end of last year, an anti-money laundering expert has warned.

The lender was censured by the FCA in December for a range of anti-money-laundering (AML) shortfalls between 2012 and 2017, with the regulator particularly highlighting its failure to adequately verify the information provided by business customers about the business they would be doing.

But a comprehensive survey of regulated firms commissioned by SmartSearch, the UK’s leading provider of digital compliance solutions, saw more than a quarter of finance and banking firms admitting to similar AML shortcomings.

Up to 26% said they either did not carry out any verification checks on new business clients or did so just “some of the time”.

And almost half (45%) of the banking and finance firms who responded disclosed that they did not identify the ultimate beneficial owners of the new companies they dealt with – a loophole often exploited by money laundering criminals, who create complicated corporate infrastructures to hide the real recipients of criminal activity.

The survey saw decision-makers in 500 regulated UK businesses from the legal, property, and finance sectors questioned on a range of compliance issues.

Martin Cheek, managing director of SmartSearch said, “Despite the high profile, eye-watering levels of financial and reputational damage which come with breaches, these responses show a worrying continued lack of due diligence when it comes to compliance. And if that wasn’t concerning enough, failing to verify ultimate beneficial owner checks can also see regulated firms sleepwalking into dealing with Politically Exposed Persons and people on sanctions lists.”

“In fact, regulated firms are legally bound to identify ultimate beneficiaries as part of their compliance procedures. But, without the advanced technology of a proper compliance solution, unraveling layers of companies to find ultimate beneficiaries is an almost impossible undertaking.

“This is a clear indication that the banking sector should be investing in electronic verification (EV) and a digital compliance solution that includes fast, comprehensive ultimate beneficiary checks. The use of EVs is recommended in the 2020 Money Laundering and Terrorist Finance Act as part of regulated firms’ compliance procedures. Moreover, it becomes even more compelling with every high-profile censure like the one meted out to Santander.” Cheek added.

The survey is the second in SmartSearch’s continuing Electronic Verification Uncovered campaign, which aims to make regulated firms aware of the dangers of relying on flawed, old-fashioned methods of identity verification.