HKMA reprimands four Asian banks due to AML abuses

The Hong Kong Monetary Authority (HKMA) has disciplined four banks due to anti-money laundering (AML) violations for a total imposed penalty of HKD$44.2m.

According to Regulation Asia, 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 Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO).

ICBC Asia, UBS Hong Kong, CCB Asia and CTBC Hong Kong were the four banks in question who were reprimanded. The lapses identified at the four banks related to ongoing monitoring of customer relationships and deficiencies in conducting customer due diligence in high-risk settings.

ICBC was penalised HKD$20.7m due to it flouting nine AMLO provisions between April 2012 and September 2018. These provisions including conduct periodic reviews of high-risk customers with an ‘undue delay’ as well as failing to establish and maintain effective procedures for periodic reviews. This was attributed to a lack of an automated centralised record of customer information.

Furthermore, ICBC failed to establish a source of wealth and source or funds of customers and/or beneficial owners who were politically exposed persons before establishing or continuing those business relationships, as well as failing to establish and maintain the right procedures for identifying PEPs. The bank also failed to include some information of the originator in payment messages of outgoing wire transfers which was due to a lack of effective ways to identify and handle incomplete information in payment messages. Failing to obtain senior management approval on time and failing to establish or continue business relationships with customers in high-risk and being unable to locate and provide the HKMA with some customers risk assessments forms were also reasons for penalisation.

UBS Hong Kong, meanwhile, suffered a penalty of HKD$9m for breaking four AML provisions between 2012 and 2015. These crimes included failing to establish and maintain effective procedures for conducting periodic reviews of customer accounts and failing to carry out due diligence and conduct timely periodic reviews on customers after suspicious transactions had already taken place. It also failed to terminate high risk business relationships at a stage deemed early.

The CCB was penalised HKD$8.5m for breaking four provisions of AMLO between 2013 and 2018. This was due to failing to conduct annual reviews for high-risk customers, conduct timely periodic reviews due to trigger events for some customers, complete investigations in a timely manner and failing to examine the background and purpose of complex and unusual transactions.

The CCB also investigated only a small proportion of alerts generated by the bank’s transaction monitor system and only focused on alerts that met restrictive selection criteria. It failed to obtain timely senior management approval to continue business relationships in high-risk situations and was unable to provide the HKMA with the records of reviewers for some customers.

Lastly, the CTBC Hong Kong branch suffered an HKD$6m penalty for breaking three AMLO provisions between 2012 and 2014. This included failing to establish and hold up effective procedures to ensure customer information was up-to-date and relevant, and failing to take enhanced due diligence measures in respect of certain high-risk customers.

HKMA executive director for enforcement and AML Carmen Chu said, “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.

“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.”

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