Banks Will Be Named In Future Money-Laundering Scandals, Say UK Regulators

LONDON -- UK banking regulators warn that they shall exercise the new powers they will acquire later this year to name and shame banks used by money launderers.

They made the warning in comments on the early-March news that the laxness of 15 unnamed UK and non-UK banks based in Britain allowed nearly $1.3 billion to go through accounts linked to the late Sani Abacha, the former Nigerian dictator. Abacha and his family are estimated to have looted Nigerian public funds of up to $4 billion.

Current UK banking legislation safeguarding the confidentiality of information provided by banks prevents the Financial Services Authority (FSA), the UK's principal financial watchdog body, from naming the banks.

The FSA would only say that the total of 23 banks that had accounts linked to the Abachas included UK banks and branches of banks from both inside and outside the European Union.

However, it is discussing potential breaches of existing UK anti-money laundering laws highlighted by its inquiry with UK law enforcement agencies.

The FSA is co-operating with international regulators in developing guidance for financial firms on handling the accounts of high-profile political figures.

Of the 23 UK banks, eight properly reported the accounts as suspicious under current UK anti-money laundering law, according to the results of a three-month FSA inquiry.

But FSA managing director Phillip Thorne described the extent of the weaknesses in the other 15 as "frankly disappointing" (see box).

Eight of the 15 have since strengthened their anti-money laundering controls. But the FSA ordered seven banks with significant control weaknesses to rectify the problems under FSA supervision within strict deadlines.

Officials say the FSA would like to have named the offending banks. That would have brought Britain into line with Switzerland, long famous for its tradition of banking secrecy, which last year named and shamed leading Swiss banks for handling Abacha money. Credit Suisse, Switzerland's second largest bank, was among those named and reprimanded by the Swiss Federal Banking Commission last September.

However, the FSA gets greater powers to deal with money laundering under the UK Financial Services and Markets Act that comes into effect later this year. Officials say the act allows the FSA to discipline banks by naming and fining them for laxness about money laundering. The FSA intends using the new powers.

Meanwhile, the UK government has still to respond to a Nigerian government request last year to freeze allegedly Abacha-related accounts at 15 banks in London, including Barclays, Merrill Lynch, Standard Chartered, Citigroup and Australia and New Zealand Banking Group.

The London operation of Citigroup, the largest financial services firm in the US, was earlier identified as handling Abacha money by a US Senate inquiry.

As Operational Risk went to press, none of these banks would comment on whether they were among the 23 banks in the FSA investigation.

The tardiness of the UK response to Nigeria's request has attracted criticism both from Nigerian officials and UK politicians and lawyers. The UK Home Office (internal affairs department) says it can't take action until it receives more information about criminal actions being taken by Nigeria against Abacha family members.

However, the UK Serious Fraud Office, which supervises the investigation and prosecutions of major frauds, has separately agreed to help Swiss banking regulators get information about Abacha accounts with UK banks.

But the UK government said in early March it would bring in new laws next year that would enable it to respond more quickly to foreign government requests to freeze criminal assets.

The new laws will create a criminal assets recovery agency with powers to seize assets acquired through crime. They will also widen the money laundering offences for which bankers can be prosecuted.

At present it is an offence for a financial services worker in the UK to fail to report evidence of the laundering of drug money or terrorist funds. The new bill will make it an offence to fail to report evidence of money laundering for any purpose.

The FSA, concerned that money-laundering scandals damage the reputation of both banks and financial markets in the UK, says its new powers will enable it to deal more effectively with any failures in anti-money laundering systems and controls.

The FSA's enquiry identified 42 personal and corporate accounts linked to the Abacha family and its close associates held in the 23 banks in the UK.

Turnover on the 42 accounts amounted to $1.3 billion in the four years between 1996 and 2000. Some 98% of the turnover went through the 15 banks with significant control weaknesses. The figure relates only to the turnover on the accounts; it does not necessarily represent the proceeds of crime or the amount of money brought into the UK.

Meanwhile, FSA officials confirmed investigators from a French parliamentary anti-money laundering task force had visited the UK regulator in pursuance of an inquiry into money laundering in the UK.

French report

The French body, which in February accused Switzerland of waging a sham war against money laundering, hopes to publish its report on money laundering in the UK, the Channel Islands and Gibraltar later this year.

The Swiss Finance Ministry and the Swiss Bankers' Association rejected the French accusations of laxness in the fight against money laundering, and pointed to Swiss efforts in recent years to tighten its anti-money laundering laws.

The French task force is investigating money-laundering activities around Europe. Last year it named Liechtenstein as a dangerous tax haven and criticised Monaco's slackness in the fight against money laundering.

David Keefe

Know Your Customer The inquiry by the Financial Services Authority (FSA), Britain's principal financial watchdog, into the handling of bank accounts relating to the Abacha family (see main story) identified the "know-your-customer" failings made familiar by other money-laundering investigations around the world. The problems stem largely from banks failing from the start to identify properly the nature of the accounts and the risks associated with them. The FSA found the following shortcomings at one or more of the 15 unnamed banks it identified as having significant control weaknesses in relation to their handling of accounts relating to the Abacha family: • Inadequate senior management oversight of account opening by customers who could be classified as high risk; • Weakness in the verification of the identity of beneficial owners of companies; • Over-reliance on introductions by existing customers; • Inadequate understanding of the source of the customer's wealth; • Shortfalls in following industry guidance on reporting suspicious dealings to the UK's National Criminal Intelligence Service; • Weaknesses in record retrieval and retention. A task force will oversee the remedial action programmes ordered for seven of the 15 banks by the FSA. The FSA is likely to commission forensic accountants, probably from one or more of the 'Big Five' international accounting firms, specialising in the analysis of anti-money laundering controls. The cost of the reviews will be borne by the banks.