UK regulator fines B of I over money laundering breaches

Bank of Ireland has been fined by the British financial services regulator for failing to prevent possible money laundering at a branch in Glasgow.

The transactions involved, amounting to £2 million (€2.9 million), are the subject of a police investigation.

Forty bank drafts made out to the Bank of Ireland were issued to one of the branch's largest customers in return for cash over a four-year period, despite their being no obvious business reason for the issuing of such drafts.

The drafts were issued between 1998 and 2002. By the time they were discovered, drafts worth £1.8 million had not been cashed. The bank has been fined £375,000 (€552,000).

The transactions involved large cash deposits which were not put into the customer's account and which were outside the normal business activity of the customer.

Lodgment of the cash in the branch's "drafts outstanding account" meant that the source of the funds could have been difficult to trace, the Financial Services Authority (FSA) said.

"In addition, the customer made clear on a number of occasions to staff at the branch that the customer's name was not to be used on cheques or correspondence relating to the draft transactions."

The transactions were in breach of the bank's own policies and were not identified as suspicious by bank staff. Nor were they identified as suspicious by the manager of another branch who became aware of them in 2002.

The branch's internal controls, annual peer reviews by staff from other branches, and the Bank of Ireland group audit department all failed to detect the "misuse" of the bank drafts facility, according to the FSA, until a branch audit did so in March 2003.

The bank then brought the matter to the attention of the FSA. The authority said the bank had since "devoted significant resources to investigating the matter and to ensuring that the misuse was not replicated elsewhere in the branch network".

Changes to the bank's policy in relation to drafts have been introduced, including a new requirement that all drafts outstanding for more than six months and involving more than £10,000, will be subject to independent oversight.

Bank of Ireland issued a five-paragraph press statement yesterday in which it said it regretted the breach of the FSA's "systems and controls rules".

It noted that the authority confirmed that the misuse of drafts occurred at only one branch. It said the FSA had commented favourably on the co-operation it had received from the bank. A spokesman said the bank would not be commenting further for reasons of staff and customer confidentiality.

The detailed FSA statement on the "breaches of anti-money laundering requirements" ran to a number of pages. The branch was not identified but is understood to be in Glasgow.

The FSA said the amount involved illustrated the seriousness of the breach. The bank did not "check that its staff understood fully their anti-money laundering responsibilities in relation to the recognition and reporting of suspicious transactions".

It said it had repeatedly stressed the importance of effective money-laundering controls and had on five previous occasions taken disciplinary action against regulated firms for failing to meet the FSA's anti-money laundering requirements.