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Fines for anti-money laundering systems failures

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24th Nov 2005
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The Financial Services Authority has handed out fines to bond brokers Investment Services UK (ISUK) and its managing director for failing to have the necessary anti-money laundering (AML) systems and controls in place.

ISUK was fined £175,000, and is becomes the first approved person to be fined for AML failures. Managing director Ram Melwani was fined £30,000.

There was no evidence of money laundering or that Mr Melwani deliberately attempted to mislead the bank.

ISUK is an emerging market bond broker. Its clients are corporate vehicles established for trading purposes and operated by non-resident, wealthy individuals. The vehicles are incorporated in offshore jurisdictions, some of which have AML controls weaker than those in the UK. They are therefore seen as having a high risk money laundering profile.

The broker helped its clients to open accounts with a particular bank so they could participate in bond trades. But it failed to provide the bank with the appropriate information about the account users to assess the risks to which it was exposed. As a result of ISUK's actions, a small number of individuals were able to operate anonymous accounts and over £8 million entered the UK financial system without the bank knowing the identity of its customers or the source of their funds.

In addition, when opening some accounts, ISUK used introduction certificates which are intended to demonstrate that all necessary customer due diligence has been conducted. However, some certificates contained misleading information.

The company was fined for conducting its business without due skill, care and diligence and for failing to control its business effectively in relation to AML systems and controls. Mr Melwani was fined for failing to act with due care, skill and diligence, failing to ensure his firm complied with AML requirements and for being knowingly concerned in ISUK's actions.

Most of ISUK's clients were either acquaintances or members of Mr Melwani's family and although he knew them by name, ISUK did not have adequate procedures to verify their identity or the source of their funds.

Philip Robinson, Financial Crime Sector Leader at the FSA said: "The FSA will continue to use enforcement powers to address money laundering concerns where there are significant failings in a firm's defences. Allowing individuals anonymous access to UK banking facilities, without adequately verifying their identity or source of funds, demonstrates significant failings.

"Senior managers are ultimately responsible for managing their firm's risks. Where a firm fails to mitigate a high money laundering risk, sanctions against senior management may follow."

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