UK punishes Sonali Bank and its ‘unsupported and overworked’ ex-compliance officer

The UK Financial Conduct Authority Wednesday sanctioned Sonali Bank (UK) Limited and its former compliance officer after years of serious anti-money laundering system failures.

The FCA fined Sonali UK £3.25 million (nearly $4 million) and banned it from accepting deposits from new customers for 24 weeks.

The regulator also punished the bank’s former compliance officer, Steven Smith, even after finding he was unsupported and overworked.

Smith was fined £17,900 (about $22,000) and banned from AML or other compliance oversight functions at regulated firms.

Sonali is the biggest bank in Bangladesh. It has three UK branches — in London, Birmingham, and Bradford.

The Bangladesh government owns 51 percent of Sonali Bank.

The FCA found “serious and systemic weaknesses” at almost all levels of Sonali UK’s AML program — in senior management, the money laundering reporting function, the oversight of branches, and in AML policies and procedures.

The FCA said,

This meant that the firm failed to comply with its operational obligations in respect of customer due diligence, the identification and treatment of politically exposed persons, transaction and customer monitoring, and making suspicious activity reports.

For example, Sonali UK failed to tell the FCA for at least seven weeks about an allegation of “significant fraud” against a customer at the bank.

The FCA warned Sonali UK as early as 2010. Despite that, the bank failed to maintain adequate AML systems from 2010 to 2014, the FCA said.

Smith became the bank’s AML reporting and compliance officer in February 2011. He oversaw the day-to-day operation of Sonali UK’s controls.

Despite repeated warnings from Sonali Bank UK’s internal auditors based on the FCA’s 2010 review, Smith:

• failed to put in place appropriate AML monitoring arrangements

• failed to identify serious weaknesses in operational controls and a lack of appropriate knowledge among staff members

• reassured Sonali Bank UK’s board and senior management that controls were working well when they were not

• failed to report appropriately Sonali Bank UK’s internal auditors’ concerns and the results of internal testing, and

• failed to impress upon senior management the need for more resources in the AML reporting function and failed to take adequate steps to recruit more staff in a timely fashion.

The FCA said in sanctioning Smith it considered that he “did not have sufficient senior management support and was overworked.”

But Smith’s failings were serious and he didn’t take “any of the potential steps open to an [AML reporting officer] in such a position,” the FCA said.

He could have escalated concerns internally to senior management, relevant board committees, or internal auditors. He could also have included the concerns in reports to the FCA.

“Any such report could be made on a confidential basis,” the FCA said.

The FCA found that Smith “failed to exercise due skill, care and diligence in managing the business of the firm for which he was responsible.”

Both Sonali Bank UK and Smith settled with the FCA at an early stage and qualified for a 30 percent discount on their financial penalties.

The FCA’s Mark Steward said: “There is an abundance of guidance for firms on how to comply with AML and financial crime requirements and no excuse for failing to follow it.”

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The final notice of October 12, 2016 against Sonali Bank (UK) Limited is here (pdf) and the final notice against Steven Smith is here (pdf).

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Richard L. Cassin is the publisher and editor of the FCPA Blog.