A UK regulator has fined EFG Private Bank for failing to maintain effective anti-money laundering controls, it said today, adding to a list of firms that have been punished for such transgressions.

A UK regulator has fined EFG Private Bank, the UK banking subsidiary
of Switzerland's EFG International, a total of £4.2 million ($6.41 million) for
failing to maintain effective anti-money laundering controls, it said today,
adding to a list of firms that have been punished for such transgressions.

EFG Private Bank said no money laundering activity has been
proven to have taken place.

The fine was imposed by the recently-formed Financial
Conduct Authority on the firm for “failing to take reasonable care to establish
and maintain effective anti-money laundering controls for high risk customers. The
failings were serious and lasted for more than three years,” the FCA said in a
statement.

The fine adds to punishments meted out by regulators on
firms for AML systems failures and oversights in recent months. Other firms
punished include HSBC, Standard Chartered and Coutts. (To see a full list of
recent regulatory actions against firms, click here.)

“This is the first anti-money laundering fine issued by the FCA at a
time when its approach to enforcement is under intense scrutiny. The FCA
seems
to show no change in approach from its predecessor, the FSA, in
enforcing a tough stance on anti-money laundering. It remains to be seen
whether the FCA will focus on any particular products, and how open the
FCA will be to engaging in a constructive dialogue
with market participants," Jeremy Hill, a London based partner at law firm Debevoise & Plimpton, said.

At the end of 2011 around 400 of EFG’s 3,342 customer
accounts were deemed by the firm to present a higher risk of money laundering
or reputational risk, and of these 94 were held by politically exposed persons,
the FCA said.

The problems came to light when the-then Financial Services
Authority – the regulator that has been broken up with some roles transferred
to the FCA – carried out a “thematic review of how UK banks were managing money
laundering risk in higher risk situations”, and visited EFG in January 2011.

“That visit and further investigation caused serious concern
to the FSA. The investigation found that EFG had not fully put its AML policies
into practice. Of particular concern was that 17 of 36 reviewed customer files,
opened between December 2007 and January 2011, contained customer due diligence
that highlighted significant money laundering risks, but insufficient records
of how the bank’s senior management had mitigated those risks,” the FCA’s
statement said.

“Of these 17 files, the FSA found that the risks highlighted
in 13 files related to allegations of criminal activity or that the customer
had been charged with criminal offences including corruption and money
laundering,” it continued.

“For example in one account, EFG’s due diligence highlighted
that a prospective client had acquired their wealth through their father, about
whom there were allegations of links with organised crime, money-laundering and
murder.  However there was insufficient
information on file to explain how the bank concluded that this risk was
acceptable or how it was mitigating the risks,” it continued.

The regulator said EFG also “failed to appropriately monitor
its higher risk accounts”.  Of the 99 PEP
and other high risk customer files reviewed by the FSA, 83 raised serious
concerns about EFG’s monitoring of the relationship, it said.

EFG’s response

The firm said the FCA fine will “not impact reported profit
this year as it was fully provided for in the 2012 results”.

“EFG Private Bank is disappointed that shortcomings were
found relating to the period December 2007 to January 2011, even though it has
found no evidence that money laundering actually took place. This is the first
time EFG Private Bank has been the subject of disciplinary action. Senior
management has cooperated fully with the FCA and remedial action has been taken
to ensure that its systems and controls are robust,” it said.

“As announced in February, at the time of its annual
results, EFG International recognises that regulatory compliance is a
pre-requisite of growth, and that effective controls are more important than
ever. Notwithstanding the improvements it has made in the UK and
elsewhere, it has engaged an external party to provide an objective assessment
of the effectiveness and efficiency of its approach, across all of its
businesses,” it said.

EFG settled at an early stage of the investigation and
qualified for a 30 per cent discount on its fine. Without the discount the fine
would have been £6 million,” the FCA said.