The Monetary Authority (MA):-
(a) has reprimanded Coutts & Co AG, Hong Kong Branch (also known as Coutts & Co Ltd, Hong Kong
Branch) (Coutts Hong Kong) for contravening five specified provisions of the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (Chapter 615 of the Laws of Hong Kong) (AMLO); and
(b) has ordered Coutts Hong Kong to pay a pecuniary penalty of 7,000,000 Hong Kong Dollars.
The disciplinary action (Note 1) follows an investigation by the Hong Kong Monetary Authority (HKMA) which found that, between April 2012 and June 2015, Coutts Hong Kong contravened five specified provisions of the AMLO (Note 2).
The investigation found that Coutts Hong Kong failed to establish and maintain effective procedures for
(i) determining whether its customers or the beneficial owners of its customers were politically exposed persons (PEPs) (Note 3); and (ii) obtaining senior management approval to continue a business relationship with a customer after Coutts Hong Kong had come to know that the customer or a beneficial owner of the customer was a PEP. The investigation also found that Coutts Hong Kong had failed to identify PEPs despite relevant information being publicly available and to follow up promptly on PEP alerts received from a commercially available database to which Coutts Hong Kong subscribed. These failures were symptomatic of the deficiencies in procedures. As a result, there was delay not only in identifying PEPs but also in obtaining senior management approval to continue business relationships with PEPs. The investigation also found contraventions arising from failures to carry out customer due diligence before establishing a business relationship and to obtain senior management approval to continue a business relationship which presented a high risk.
In deciding the disciplinary action, the MA took into account all of the relevant circumstances and factors including the following:-
(a) the need to send a clear deterrent message about the importance of effective internal anti-money laundering and counter-terrorist financing (AML/CTF) controls and procedures;
(b) Coutts Hong Kong proactively engaged an external consultant to conduct an extensive review on its policies and procedures and remediation of client files;
(c) Coutts Hong Kong has taken positive and intensive remedial measures to address the deficiencies identified by the HKMA; and
(d) Coutts Hong Kong co-operated with the HKMA during the investigation.
Ms Meena Datwani, Executive Director (Enforcement and AML) of the HKMA, said, “This is a case about deficiencies in the AML/CTF systems and controls which led in some cases to the failure to identify PEPs and in other cases to the failure to seek senior management approval to continue business relationships with PEPs. PEPs are individuals whose prominent position in public life may make them vulnerable to corruption and they therefore pose a higher risk of money laundering. Banks are expected to have in place AML/CTF systems and controls that are commensurate with the risks presented and the HKMA will take enforcement action where appropriate to reinforce this message. ”
Relevant link: Statement of Disciplinary Action
The disciplinary action is taken under section 21 of the AMLO. The AMLO imposes customer due diligence and record-keeping requirements on financial institutions, including authorized institutions. The MA is the relevant authority under the AMLO in relation to authorized institutions.
Coutts Hong Kong contravened sections 3(1), 10(2), 15, 19(1) and 19(3) of Schedule 2 to the AMLO.
Pursuant to section 1 of Schedule 2 to the AMLO, “politically exposed person” (PEP) means:
Hong Kong Monetary Authority
11 April 2017