Are your AML policies and procedures adequate?

The recent conviction of Abu Dhabi Commercial Bank’s Jersey branch (ADCB) is a cautionary tale for financial services institutions, and regulated businesses generally. ADCB’s conviction, for failing to maintain appropriate and consistent policies and procedures relating to customer due diligence measures and risk assessment and management in order to protect money laundering, as required by the Money Laundering (Jersey) Order 2008 (the MLO), shows that not only must financial services have such policies in places, but they must apply them too. If they don’t, a hefty fine awaits: £475,000 in ADCB’s case (after a full one-third guilty discount).

 

“Punishment and deterrence”

ADCB is the first financial services institution to be prosecuted for the offence under the MLO, with one other financial services institution having been prosecuted for a similar offence in 2005 under the former version of the MLO. The Royal Court’s reasoned judgment, AG v Abu Dhabi Bank , published on 14 April 2020 gives the first modern guidance on sentencing financial services institutions for breaches of the MLO. In doing so, the Royal Court approved the Crown’s suggestion of considering the areas on which the UK Financial Conduct Authority bases its assessment of the appropriate regulatory fine in similar circumstances.

The relevant areas are:

  1. seeking to deprive the firm being sanctioned of any financial benefit;
  2. identifying a figure that represents the seriousness of the breach;
  3. allowing for any aggravating factors; and
  4. adjusting to reflect the importance of deterrence.

 

The Royal Court highlighted the deterrence factor, saying “in our judgment it is important for the penalty in this case to represent the seriousness of failing to maintain adequate anti-money laundering policies and procedures and to apply them consistently…these things militate in favour of a significant financial penalty to provide both an appropriate punishment and deterrence”. It was not impressed by ADCB’s argument that its imminent exit from Jersey ought to be a mitigating factor, although it did decide that the Crown’s starting point for the appropriate fine – £900,000 – was a little too high.

 

“A matter more of luck than judgment”

What lessons can financial institutions take from ADCB’s conviction and sentencing? Although the facts underpinning ADCB’s breach of the MLO were somewhat unusual – allowing customers to take hundreds of thousands of dollars in cash out over the counter in the UAE with no adequate transaction monitoring – the Royal Court’s key message is that “the importance of having effective consistent policies and procedures to combat money laundering cannot be overstated”. Even if there is no actual evidence of money laundering occurring as a result of a lack of such procedures, this will be “a matter more of luck than judgment”.

Financial services institutions should take a long hard look at their anti-money laundering policies and procedures. These need to be effective and consistent, and they need to reflect the degree of money laundering risk in the business to which they relate. They need to work for the types of transactions present in that business, and they need to be applied properly and consistently by staff. Subsidiaries or branches of multinational entities should be especially careful to ensure that Jersey anti-money laundering requirements are being applied wherever there is a Jersey connection. As the Royal Court noted, “understanding in connection with anti-money laundering is developing”, and financial services institutions need to adapt accordingly.

 

Eleanor Davies, Associate

William Redgrave was instructed by the Economic Crimes and Confiscation Unit to act as Crown Advocate representing the Attorney General in this case. He was assisted by Eleanor Davies.

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