Commerzbank’s London branch has been fined £38m by the Financial Conduct Authority for failing to make adequate money laundering checks over a five-year period, the second-largest fine to be imposed by the City regulator for deficiencies in combating potentially illegal transactions.
On Wednesday, the FCA announced it was penalising the German bank for weaknesses in its systems for preventing the flow of dirty money through the UK capital between October 2012 and September 2017.
Commerzbank’s London management had been aware of these problems, but failed to take “reasonable and effective steps to fix them”, the regulator said — even after it had raised concerns with the bank on three separate occasions.
Mark Steward, the FCA’s executive director of enforcement and market oversight, said: “Commerzbank London’s failings over several years created a significant risk that financial and other crime might be undetected . . . Anti-money-laundering controls are vitally important to the integrity of the UK financial system.”
Commerzbank said that it co-operated fully with the FCA. It has “successfully remediated and addressed the deficiencies that were the subject of the investigation” and “implemented new and enhanced anti-money laundering systems, processes and controls”.
The fine hits Commerzbank amid an escalating row with US private equity funds Cerberus, which in a letter to the supervisory board last week warned that the German lender was in a “downward spiral” and needed “swift and decisive action now” to halt its demise.
Cerberus has demanded two seats on Commerzbank’s supervisory board as it calls for significant change of the management board and the company’s strategic plan. Commerzbank has rebuffed the demands.
A subsequent FCA investigation found that Commerzbank London was not conducting timely due diligence on its clients, which meant nearly 2,000 customer checks were overdue. A “material number” of these unchecked clients were allowed to continue their transactions via the bank’s London branch.
In addition, the lender did not address “longstanding weaknesses” in its automated tool for assessing the money laundering risk on transactions for clients. In 2015, 40 high-risk countries and 1,110 high-risk clients were not included in Commerzbank’s automated monitoring system, the FCA said.
Policies and procedures for conducting customer due diligence were also found to be inadequate.
Stephen Baker, senior partner at law firm Baker & Partners, said: “The fine by the FCA is yet another example of large financial institutions failing to appreciate that anti-money laundering laws, rules and regulations do in fact apply to them.”
Money laundering through London’s financial centre has become a growing problem in recent years, with the UK’s National Crime Agency estimating the cost to the UK economy of illegal fund flows at £100bn a year. In March, Rishi Sunak, chancellor of the exchequer, announced a new £100m levy on companies to help combat the crime.
The FCA’s penalty was initially set at £54m but discounted by 30 per cent as Commerzbank London agreed to resolve the matter at an early stage of the investigation. Last year, the regulator ordered Standard Chartered to pay £102m for breaches of money laundering regulations by its investment and retail bank operations.
The German lender swung to a net loss of €295m in the first quarter as provisions for credit losses during the quarter surged more than fourfold year-on-year. For the full year, analysts expect a net loss of €422m after a net profit of €644m last year.
Commerzbank is currently looking for ways to step up its cost-cutting plans that were announced last year after regulators, shareholders and analysts criticised the plans as too timid. Shares in Commerzbank lost 27 per cent this year, largely underperforming the wider German stock market.
Get alerts on Money laundering when a new story is published