Lombard Bank fined €340,000 by FIAU over money laundering shortcomings

FIAU finds low level of risk assessment and enhanced due diligence for PEP and voluminous transactions at Lombard Bank 


Lombard Bank has been fined €340,058 for breaching anti-money laundering obligations by the Financial Intelligence Analysis Unit.

The breaches were identified by the FIAU in an inspection on the bank carried out in September and October 2019. The bank said they did not relate to suspicions or evidence of money laundering,” the bank said.

Lombard said in a staement it was committed prevent the use of its services for any form of illicit activity. “Indeed, as a matter of policy it does not enter into business relations with those involved in sectors considered to carry inherent AML/CFT risks while it continues to strengthen its defences to this end.”

Lombard Bank will be appealing against the decision.

But the FIAU said Lombard’s business risk assessment did not provide a holistic understanding of the various risk factors that may arise out of the bank’s activities, which did could not comprehend which areas of risk required the strongest controls.

The FIAU also said the bank’s customer risk assessment procedures were not rigorous and comprehensive enough. “Consequently the Bank was not able to understand the risks posed by customers and to effectively apply the measures required to mitigate the risk identified in line with the risk-based approach... the bank did not outline how for example a customer involved in a high risk business who requested a low risk product would be ultimately risk rated.”

The FIAU also found a number of files in which the required enhanced due diligence measures (EDD) were either not carried out or deemed to be inadequate.

In one particular case, the bank had increased one of its customer’s risk rating to high throughout the course of the business relationship in view of a change in circumstances which warranted an increase in this customer’s risk. Bt the “satisfactory evidence” the bank claimed to could not verify the provenance of the funds and therefore even the close monitoring carried out was rendered ineffective.

In one client file involving a politically exposed person, the bank failed to apply EDD that would address the high risk emanating from PEPs. This in view that despite being aware of the customer’s political involvements, the bank failed to establish the Source of Wealth (SoW) and Source of Funds (SoF). “This is required in order to be satisfied that the customer does not handle proceeds derived from corruption or other criminal activities which are increased risks known to be associated with customers who are PEPs.”

Lombaerd also fialed to obtain sufficient information to establish the purpose and intended nature of the business relationships it maintained with its customers. Three files contained inadequate information recorded to satisfy the sources of wealth requirements. “These files either had no information at all, or the information held on file did not provide enough detail to support the activities that generated the customer’s overall accumulation of wealth.”

Doubts were also raised as to how a bank, having such a size and customer base could update its records manually, something which as evidenced from the findings of the compliance review, was not being achieved by the bank.

Serious shortcomings were identified in relation to the bank’s obligation to scrutinise transactions taking place through the customers’ accounts.

“The bank either did not scrutinise the transactions being effected through its accounts, or it otherwise carried out inadequate monitoring of the activity carried out within the accounts held... Whilst in certain instances the volumes passing through the bank’s accounts were extremely large, in other cases the transactions did not tally with the customer profile. The bank neither questioned such voluminous amounts nor did it attempt to obtain further information about the payments from its customers. Instead, it proceeded to allow the transactions being effected.”

In one of the files reviewed, although a deposit of €2,000,000 had been effected, the provenance of these funds was not substantiated in any manner.

In addition, although there was a substantial increase in the funds deposited with the bank from this same customer which resulted in a deposit of €4,000,000 within a span of only 10 months, such a substantial increase was not questioned by the Bank.

In another file reviewed, although the customer received a deposit of over €400,000 the only explanation found on file was that the funds were the customer’s savings inherited from her parents. However, this statement was not corroborated with sufficient evidence. The bank was expected to obtain a copy of the will and not rely merely on an explanation made by the customer.

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