The Hong Kong Monetary Authority has reprimanded and fined Coutts Hong Kong Branch for contraventions of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance.

The Hong Kong Monetary Authority (HKMA) said it was sending out a firm message with its latest enforcement action.

HKMA has reprimanded Coutts & Co AG, Hong Kong Branch (Coutts Hong Kong) for contravening five specified provisions of the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance and has ordered Coutts Hong Kong to pay a pecuniary penalty of 7 million Hong Kong Dollars.

The disciplinary action follows an investigation by the HKMA which found that, between April 2012 and June 2015, Coutts Hong Kong contravened five specified provisions of the AMLO.

Coutts was also fined in December by the Monetary Authority of Singapore 2.4 million Singapore Dollars for breaching anti-money laundering regulations in 1MDB-linked transactions.

Politically Exposed Persons

The investigation found that Coutts Hong Kong failed to establish and maintain effective procedures for determining whether its customers or the beneficial owners of its customers were politically exposed persons (PEPs).

HKMA said Coutts Hong Kong obtained 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.

«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,» said Meena Datwani, Executive Director (Enforcement and AML) of the HKMA.

 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.

 «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,» Datwani added. 

 Commenting on the action Union Banciare Privee who acquired the Coutts Hong Kong unit said, «UBP acquired a portion of Coutts International’s client base, but not the legal entity itself - it was an asset only deal. As such, UBP has not inherited any of Coutts’ legal liabilities.»