24 Feb 2020
Compliance officers can learn a lot from the anti-money laundering compliance shortcomings at Julius Baer Group, as well as from what the Swiss multinational private bank is now doing to enhance its risk management and AML compliance controls.
The shortcomings were uncovered by the Swiss Financial Market Supervisory Authority, known as FINMA, following inspections the regulator had conducted at several Swiss banks over alleged cases of corruption linked to Venezuelan state-owned oil company Petróleos de Venezuela (PDVSA) and world soccer federation FIFA. Part of this process included appointing an agent to investigate Julius Baer in 2017, an investigation FINMA said it broadened in 2018 following the arrest of one of the bank’s client advisers in the United States and in response to events unfolding in Venezuela.
FINMA’s now-concluded proceedings found Julius Baer breached its obligations to combat money laundering and failed to put in place appropriate risk management controls, “representing a serious infringement of financial market law,” the regulator said.
During its investigation, FINMA uncovered the following specific compliance shortcomings:
Defective KYC processes. Julius Baer did not do enough to determine the identities of clients, nor did it establish the purpose or background of its business relationships. Information contained in Know-Your-Customer (KYC) documentation was either incomplete or ambiguous for most of the audited business relationships. For example, information was frequently missing as to how individual clients had come by their wealth, why they wanted to open an account with Julius Baer, and what business they were planning to transact.
Due diligence failures. According to FINMA, nearly all 70 business relationships selected on a risk basis, and the majority of the more than 150 sample transactions selected on the same basis, showed irregularities. Moreover, these offenses spanned from 2009 to early 2018.
Transactions were insufficiently queried, even amid warning signs of money laundering activity. For example, a CHF 70 million (U.S. $71.6 million) transaction was carried out for a large Venezuelan client in 2014 without the required investigations, even though the bank had learned in the same year the client was facing accusations of corruption, FINMA said.
Misplaced incentives encouraged breaches of legal obligations to combat money laundering. “The bank’s remuneration system focused almost exclusively on financial targets and paid scant regard to compliance and risk management goals,” FINMA said. For example, a client adviser looking after Venezuelan clients in 2016 and 2017 received bonuses and other remuneration in the millions, even though Julius Baer had reported a number of this adviser’s clients—based on investigations or suspected wrongdoing in connection with the PDVSA case—to the Money Laundering Reporting Office Switzerland.
By Jaclyn Jaeger, Compliance Week, 21 February 2020
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