The firm's Managing Director, Ram Melwani, has been fined £30,000. He is the first approved person to be fined for AML-related breaches. He failed to act with due care, skill and diligence, failed to ensure his firm complied with AML requirements and was knowingly concerned in the actions taken by ISUK.
ISUK is an emerging market bond broker. Its clients are corporate vehicles established for trading purposes and operated by non-resident, wealthy individuals. The vehicles are incorporated in offshore jurisdictions, some of which have AML controls weaker than those in the UK. They are therefore seen as having a high risk money laundering profile.
ISUK helped its clients to open accounts with a particular bank so they could participate in bond trades. But it failed to provide the bank with the appropriate information about the account users to assess the risks to which it was exposed. As a result of ISUK's actions, a small number of individuals were able to operate anonymous accounts and over £8 million entered the UK financial system without the bank knowing the identity of its customers or the source of their funds.
In addition, when opening some accounts, ISUK used introduction certificates which are intended to demonstrate that all necessary customer due diligence had been conducted. However, some certificates contained misleading information.
Most of ISUK's clients were either acquaintances or members of Mr Melwani's family and although he knew them by name, ISUK did not have adequate procedures to verify their identity or the source of their funds.
Philip Robinson, Financial Crime Sector Leader at the FSA said:
"The UK's Anti Money Laundering regime must be effective, risk based and proportionate. Introduction certificates are an important feature of this regime as they allow firms to rely on the due diligence undertaken by other firms: reducing cost and removing unnecessary duplication for customers. But the regime will fail if they do not accurately represent the due diligence undertaken by the firm issuing the certificate.
"The FSA will continue to use enforcement powers to address money laundering concerns where there are significant failings in a firm's defences. Allowing individuals anonymous access to UK banking facilities, without adequately verifying their identity or source of funds, demonstrates significant failings.
"Senior managers are ultimately responsible for managing their firm's risks. Where a firm fails to mitigate a high money laundering risk, sanctions against senior management may follow."
The FSA also found that between December 2001 and December 2004, the firm did not have formal procedures for identifying individuals, did not provide AML training for its staff and did not apply to the FSA for approval of its Money Laundering Reporting Officer.
While ISUK's breaches were serious, no evidence of money laundering was found. Neither was there evidence that ISUK or Mr Melwani deliberately sought to mislead the bank. ISUK and Mr Melwani were open and co-operative with the FSA during the investigation and have taken prompt remedial action.
Background
- The full text of the final notice dated 7 November 2005 includes background to the case, the relevant statutory provisions and the regulatory requirements contravened.
- In October 2004, the FSA wrote to the Joint Money Laundering Steering Group to reiterate the FSA's approach to the supervision and enforcement of money laundering compliance.
Letter: FSA's Supervisory Approach. - In October 2004, the FSA published its report 'ID – defusing the issue: A progress report'. In the report the FSA makes clear its support for eliminating any unnecessary duplication of ID checks for customers.
- The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
- The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness
