July 1, 2013 / 3:21 PM / 6 years ago

Watchdog warns banks to step up crime safeguards

LONDON (Reuters) - A leading financial watchdog has warned British banks that they are not doing enough to protect themselves from being used for criminal activities and could be fined if they fail to raise their game.

Some banks may face punishment for failure to spot abuses in their trade finance business, such as money laundering, sanctions busting or funding of terrorists, Britain’s Financial Conduct Authority (FCA) said on Monday.

FCA Chief Executive Martin Wheatley said that organized crime nets between 20 and 30 billion pounds (about $30 billion to $45 billion) a year in Britain from illegal drugs, with 10 billion pounds “filtered, cleaned and rebottled” through banks, accountants and lawyers.

“It’s simply not acceptable for firms to turn a blind eye to where the money comes from, its journey from A to B,” he told an FCA conference on financial crime.

A review by the FCA of banks’ trade finance found that about half of the 17 banks examined - including four big British banks - had no clear policy or procedures for identifying money laundering risks.

“Our main conclusion is that the majority of banks in our sample, including a number of major UK banks, are not taking adequate measures to mitigate the risk of money laundering and terrorist financing in their trade finance business,” it said.

Banks’ internal audits failed to consider financial crime controls. “We are also considering where further regulatory action may be required for certain banks in our review.”

In trade finance, banks act as an intermediary for companies importing or exporting goods; an important role in providing money for international trade. It includes letters of credit that guarantee payment will be made for the goods, and the provision of funding when pre-payment is required.


Tracey McDermott, the regulator’s head of enforcement, said the review found that in some cases the only thing that was being shipped was “fresh air”.

“Some banks have a lot of work to do to raise their game to the best of their peers,” McDermott told the FCA conference.

There were, however, some impressive examples of best practice at some banks. For example, one told the regulator that if a foreign army was importing shower gel, the transaction had to be signed off by a managing director to check exactly who the end user was.

But at another bank, scrap metal - “a high-risk commodity in money laundering terms” - was being sold by a company in the British Virgin Islands to a company in the United Arab Emirates, but the documents showed no details of the party taking delivery, the regulator said.

A report on controls to prevent money laundering through asset managers will be published this summer and McDermott hinted that problems are being found in that sector too.

“It is a useful reminder ... that criminals are not fussy about the nature of the institution they use to launder their money,” McDermott said.

A “deep dive” into Britain’s biggest banks to check their general controls to prevent money laundering is continuing and its scope might be widened in future, she added.

“We are still too often left disappointed by what we see,” McDermott said. The regulator will publish data on what its money laundering work uncovers.

The FCA is also examining some so-called “pension liberation” schemes that persuade consumers to dip into their pension pots early, only to face hefty tax and other fees. ($1 = 0.6593 British pounds)

Editing by Jane Merriman and David Goodman

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