The Central Bank of Ireland recently reached a settlement of €2,275,000 with the Allied Irish Banks group over six infringements of the anti-money laundering/terrorist financing provisions of the Criminal Justice Act 2010. The bank admitted wrongdoing, especially in its failure to ascertain the sources of customers' wealth.

The banking regulator says that the breaches persisted on average for more than three years. They included AIB’s failure to report suspicious transactions without delay to policemen and taxmen and to apply “customer due diligence” or CDD (an ugly term to describe “know your customer” controls that the Financial Action Task Force borrowed from the Basel Group of Banking Supervisors around 2001) to existing customers who had accounts at the bank before May 1995 when the first Irish AML laws came into force.

The Central Bank’s director of enforcement, Derville Rowland, claims that AML compliance is an increasing priority. As the reporting of suspicious transactions is ‘time-critical,’ he was especially concerned that the bank did not deploy enough resources to investigate a substantial backlog of alerts.

During 2013, the Central Bank conducted a review of AIB’s compliance and identified six breaches of the CJA 2010 in the areas of suspicious transaction reporting, CDD and the ascertaining of sources of wealth and sources of the funds in question.

STRs on hold

Section 54 CJA obliges firms to have policies and procedures to help them identify, investigate and report suspicious transactions as soon as practicable. AIB failed to devote adequate resources to investigate alerts promptly and report them if necessary. Its central AML unit took more than 18 months to work its way through the backlog, which at one point stood at more than 4,200 outstanding alerts “lying on the shelf” for more than 30 days. AIB failed to give relevant senior management adequate information about the backlog. Very significantly, it failed to report 211 suspicious transactions (identified from the backlog) to the authorities, as required by section 42.

CDD

By section 33 CJA, firms are required to complete to identify and verify customers’ identities before establishing business relationships. Section 33(1)(d) requires firms to apply CDD measures where there are reasonable grounds to doubt the veracity or adequacy of documents they have previously obtained, in the absence of other documents to rely upon to confirm the identities of the customers. AIB provided services to approximately 573,000 pre-1995 customers without completing CDD in circumstances where s33(1)(d) applied. It also failed to adopt policies and procedures, under s54, to review and confirm the adequacy of identifying documents and information (if any) it held for its pre-1995 customers.

Sources of wealth, sources of funds

The Act also obliges banks to gather information about customers identified as politically exposed persons (PEPs) and monitor them. The Central Bank spotted a failure, under s54, in AIB’s procedures for taking on new PEP customers. Its branch-based procedures did not expressly require staff to ask for information on source of wealth and source of funds from a prospective new PEP customer before each business relationship began.

Trade Finance

AIB also failed, under s54, to apply written policies and specific operational controls to offset the likelihood of trade-based money laundering or terrorist finance.

When capitalists become capitulards

The breaches spanned the period between 15 July 2010 and 8 July 2014. AIB did, however, take remedial action and capitulate to the regulator’s demands at an early enough stage to be awarded the maximum settlement discount of 30%, a figure that the Irish regulator lifted from the British regime. This is the Central Bank’s 108th settlement since 2006 under the present regime, bringing the total fines it has levied to €56.975 million (£49.36 million).

The regulator last levied an AML fine in December when Bray Credit Union had to pay €98,000 (£85,000). All of its transgressions, save one, persisted for more than five years.