The Importance of "Active Cooperation" Between Financial Operators and Financial Authorities
Since AMLD3 (Anti Money Laundering Directive III, with No. 2005/60/EC of 26 October 2005), European states have been required to introduce the principle of active cooperation into their domestic legislation.
This principle provides the financial police authorities with all objective and subjective information concerning a financial transaction. This principle is also contemplated not only in the specific regulatory texts against AML but also in the modern Criminal Codes: so much so that the modern judicial system provides for a more significant sanction (administrative and criminal) for those who obstruct, conceal and hide, in order to gain an economic advantage for themselves, the illegal origin of money. Specifically, the addressees are included in their professional activity as public officials or credit intermediaries (White Collar Crime).
In summary, the principle of active collaboration is built and applied whether a large or small company (e.g., law firms, accountants, notaries, etc.).
Also, the FATF-FAFT guidelines, in several documents, ask the entities in charge of the AML obligations to perform Due Diligence Customer checks, e.g., not to hide the true identity of beneficial owners, to submit complete documentation (personal and fiscal) of all the entities involved in the financial transactions (owner, contractor and beneficiary), to cooperate with the police and judicial authorities, providing all the documents that are necessary to identify the owner and the financial transaction.
According to some experts in the AML sector, the application of this principle is demonstrated in two moments: firstly in the sending of reports, reports for suspicious financial activities such as abnormal or fraudulent transfer of money (SAR/CRT) and then during an internal inspection in the offices by economic police authorities. We would now like to present a recent case of lack of 'active cooperation between a credit institution and an investigating authority.
In an official communiqué, the Lithuanian Commission for Supervision of Finance and Markets (FKTK, Finanšu un kapitāla tirgus komisija) has recently issued a fine of EUR 5,85 million to Rietumu Bank. The reason was the bank's violation of the Anti-Money Laundering and Terrorist Financing Act (AML/CFT). This is the first time the FKTK authority has issued such a sizeable financial fine against a bank.
In 2019, the FKTK authority carried out several inspections at the registered office of Rietumu Bank of Latvia and subsequent inspections in 2020. During these FKTK inspections, the inspectors examined the bank's Due Diligence Customers' compliance with the requirements of national and international laws on the prevention of money laundering and terrorist financing and what internal control systems the bank had in place to prevent money laundering and terrorist financing. FKTK found defects and violations related to an insufficient internal control and risk management system during the inspections. In addition, the experts found that the bank had failed to assess customer-related risks adequately. In some cases, the risks of money laundering and terrorist financing had been unjustifiably reduced.
During the inspections, it was found that the bank had allocated insufficient resources to manage money laundering and terrorist financing risks. The bank was also found to lack a comprehensive and, therefore, insufficient internal control system. Its internal guidelines for the prevention of money laundering and terrorist financing and customer assessment were also found to be deficient.
The FKTK concludes by saying that these are the causes of serious violations, as multiple anomalies were found in several customer assessment and transaction monitoring processes.
The FKTK asked the bank to resolve the uncovered problems. The bank must now develop an action plan to prevent the uncovered problems and continue to work to modify its business plan and reduce the risk exposure ratio from an increased risk for different jurisdictions, as well as review the bank's risk assessment and customer database, particularly for customers with higher money laundering and terrorist financing risks.
Rietumu Bank stated that it would engage a statutory auditor or an auditing organization to conduct an independent audit of its internal control system and comply with the law above requirements. After the audit, the bank must develop measures to implement the recommendations provided in the independent audit. Until the bank has prevented the deficiencies discovered in the audit, the bank will remain subject to restrictions when attracting new high-risk customers.
As seen above, active cooperation should not only be put into practice at the time of an inspection or audit by a law enforcement authority but also beforehand by ensuring that all areas of compliance and risk management are in order, compliant with regulations and that there are no deficiencies and operational risks.
Furthermore, the FKTK draws attention to the fact that the economic amount of the fine, although calculated based on the bank's annual turnover and thus a fair proportion between damage and profit, in many banking cases (due to AML deficiencies), the penalties did not comply with this proportion, thus encouraging repeated conduct of AML violations even over a long period.
Finally, In 2016 FKTK also fined other Lithuanian credit institutions for the same AML deficiencies: the ABLV Bank for EUR 3 166 682. In 2018, FKTK fined LPB Bank EUR 2.2 million, and In 2015, PrivatBank EUR 2,017 million. In 2016, the FKTK fined Swedbank EUR 1.4 million.