Sonali Bank (UK) Ltd - decision notice against former bank CEO for AML failures

In our earlier note (FCA Final Notice, AML systems and controls and Principle 11, here) we identified the key messages arising from the Final Notice issued by the Financial Conduct Authority (FCA) to SBUK. These themes were evident once more in the recent Decision Notice against the former CEO of SBUK, Mr Prodhan, proposing to fine him £76,400.

Background

The FCA’s Decision Notice against Mr Prodhan comes two years after the FCA imposed penalties on SBUK and its former Money Laundering Reporting Officer (MLRO) for serious AML failings between August 2010 and 2014. In a Final Notice dated 12 October 2016, the FCA fined SBUK £3,250,600 and imposed a restriction in respect of accepting deposits. The FCA also issued a Final Notice to the MLRO, fining him £17,900 and prohibiting him from performing certain controlled functions.

As set out in more detail in our earlier note, the specific failings identified in the Final Notice against SBUK included:

• lack of culture of compliance
• inadequate oversight of MLRO function
• inadequate AML policy, and
• poor Customer Due Diligence (CDD), Enhanced Due Diligence (EDD) and ongoing monitoring.

Decision Notice

In April 2012, Mr Prodhan was appointed to be the CEO of SBUK. He was approved to hold the CF1 (director) and CF3 (chief executive) controlled functions and was responsible for the establishment and maintenance of effective AML systems and controls.

Throughout the relevant period (07 June 2012 to 04 March 2014), day-to-day operational responsibility for SBUK’s AML systems and controls lay with SBUK’s MLRO, who reported to Mr Prodhan. Mr Prodhan relied upon information and assurances provided by the MLRO with respect to the operation of SBUK’s AML systems and controls and failed to carry out any independent checks to ensure that such systems and controls were working effectively.

According to the FCA, when Mr Prodhan became CEO he was made aware that there were serious failings within SBUK’s systems in 2010, and that SBUK had undertaken to ensure that these identified failings were rectified. Two months after becoming CEO, Mr Prodhan received further warnings from internal auditors that the bank’s anti-money laundering systems were not adequate. The FCA say that despite these warnings, Mr Prodhan failed to take reasonable steps to ensure that AML risks were adequately identified, assessed and documented. As a result, SBUK’s board was insufficiently informed of the AML risks faced by SBUK and SBUK’s strategic planning failed to take adequate account of AML risks.

The FCA found that Mr Prodhan acted without due skill, care and diligence in breach of Statement of Principle 6 and that he was knowingly concerned in SBUK’s breach of Principle 3. In particular, the FCA say he failed to:

• take reasonable steps to assess and mitigate the AML risks arising from a culture of non-compliance among SBUK’s staff
• ensure that sufficient focus was given to AML systems and controls within SBUK that there was a clear allocation of responsibilities to oversee SBUK’s breaches, and
• appropriately oversee, manage and adequately resource SBUK’s MLRO function.

It is important to note that the FCA felt that Mr Prodhan should himself have taken reasonable steps to ensure that AML risks were adequately identified, assessed and documented (rather than relying on the MLRO). The Decision Notice states that “there were areas that should have been monitored and acted upon by Mr Prodhan, even without them being specifically raised by the MLRO or anyone else, such as the culture with respect to compliance among staff and the adequate resourcing of the MLRO function. The Internal Auditors’ reports, the lack of SARs and the insufficient oversight of branches were all indication which should have alerted Mr Prodhan to these risks, or at least caused him to make further enquiry”.

The FCA also placed notable emphasis on culture, stating that AML controls “will not be effective unless senior managers understand the risks faced by the business for which they are responsible, create a culture which supports effective regulation and take responsibility for systems for which they are responsible”.

Mr Prodhan will now contest the FCA’s findings before the Upper Tribunal.

Key Messages

• The FCA remains focused on tackling financial crime, including AML, and is willing to impose significant financial penalties on individuals where there has been a failure to implement adequate financial crime systems and controls.
• The Decision Notice signals that CEOs are responsible for taking reasonable steps to ensure that AML risks are adequately identified, assessed and documented. This responsibility cannot be delegated wholesale to a single individual, such as the MLRO.
• Firms are expected to be able to demonstrate a culture that supports effective regulation and senior management are key to delivering cultural change. The FCA expects good culture to be embedded at all levels of the business in order to enable the effective identification and prevention of financial crime.