Coutts fined for laundering violations

Coutts & Co, the private bank used by Queen Elizabeth II, was hit with the UK’s biggest-ever fine for violating money laundering rules after it failed to conduct proper checks on almost three-quarters of clients that held politically sensitive positions. The wealth division of Royal Bank of Scotland was fined £8.75m in the first case to emerge from an industry-wide probe by the Financial Services Authority into the way banks handle accounts of overseas politicians and other clients that could be exposed to corruption. The FSA said Coutts routinely failed to gather crucial information about so-called politically exposed persons – including where their funds came from – resulting in an “unacceptable risk” that the bank handled the proceeds of crime.  Lombard Crackdown gives bankers excuse to stay honest FT Alphaville The Queen in bad financial company? Cole says financial watchdogs need more bite Special Report Money laundering made difficult Coutts fined £6m for AIG mis-selling IN BANKS Jefferies to set up Europe financing arm Jefferies puts debt debacle aside Caixabank offers €980m in shares for Cívica Japan insider deal ruling raises questions Of the 103 files it reviewed, the regulator found deficiencies in 73, including the failure to identify high risk clients and problems monitoring their financial transactions. The issues were centred around clients in the Middle East and eastern Europe, although were not limited to a specific country. The FSA is looking at possible breaches at four other banks as part of an investigation that has taken on new relevance in the light of the Arab uprisings across the Middle East and north Africa. Coutts’ fine related to a three-year period from the end of 2007, a time when it was expanding fast and paying bonuses to staff that reflected the number of new customers they signed up. About 1 per cent of its clients were classified as “high risk” during that time, meaning they or their families were more vulnerable to corruption. In two cases cited in the FSA’s report, Coutts’ private bankers failed to identify serious criminal allegations against clients because their checks were ineffective. In another five, criminal links were found but not followed up and the customers were approved. “Coutts’ failings were significant, widespread and unacceptable,” said Tracey McDermott, acting FSA enforcement director. “Its conduct fell well below the standards we expect and the size of the financial penalty demonstrates how seriously we view its failures.” Coutts said there was no evidence that money laundering took place and had since conducted a “thorough re-engineering” of its systems. The bank qualified for a 30 per cent discount on the fine by settling early. “It was clearly a case that our systems and controls – particularly around documentation – were not up to scratch,” said Michael Morley, chief executive. “We have now put that right.” Coutts had already been penalised for not having controls in place to prevent accounts being used to finance terrorist organisations, as part of a £5.6m fine levied against RBS.in 2010. It was also hit with a £6.3m fine last November for failing to sufficiently explain the risks associated with savings products linked to failed US insurer AIG. In total RBS has been fined more than £25m by the FSA since its government bailout – the most of any UK bank. “Coutts’ failings were pretty egregious and fundamental,” said Sarah Clarke, a barrister with 3 Serjeants Inn. “This puts it in a serious position ... as firms who do not learn lessons from previous action ... inevitably attract close enforcement scrutiny.”