PEPs breach costs HSBC €40,000

HSBC Bank Malta was fined €40,000 by the Maltese financial intelligence analysis unit, for failing to conduct proper due diligence on a “politically exposed person”.

HSBC has been asking all politically exposed persons (PEPs) – a designation for individuals who hold positions that can be abused for the purpose of laundering illicit funds, or corruption or bribery – having accounts with the bank to disclose their sources of funds, after the bank tightened anti-money laundering rules ever since its Swiss operations came under the glare of regulators and multiple governments.

The FIAU, the government agency tasked with the fight against money laundering and terror financing, said in a 7 January statement that was not publicised that HSBC had failed to adequately scrutinise – on an ongoing basis – transactions undertaken “throughout a business relationship in order to ensure that all transactions were consistent with its knowledge of the customer and the business and risk profile.”

The FIAU said that HSBC Malta had also failed to take sufficient measures to establish the source of funds of the transactions that were carried out throughout a business relationship established with a politically exposed person; and that it had not carried out “enhanced ongoing monitoring” of a business relationship entered into with the PEP.

The rules that were breached fall under the Prevention of Money Laundering and Funding of Terrorism regulations.

An HSBC Malta spokesperson was tight-lipped about the exact circumstances triggering the fine. “HSBC Bank Malta takes note of the administrative penalty issued by the FIAU and regrets the bank’s shortcomings in this specific case,” the bank told MaltaToday.

This newspaper was told by former members of the Maltese government that they had been informed by HSBC that their bank accounts will be closed within less than two months of their notification, in line with international PEPs guidelines to limit their exposure to particular clients.

The bank said it did not comment on individual customers and was committed to upholding its legal obligations in all its operations when asked whether HSBC Malta was informing Maltese PEPs to close their bank accounts.

FIAU director Manfred Galdes said the agency could not comment on whether an obligation to make a company announcement by HSBC could have arisen in this case.

PEPs rules often affect politicians, their family members and relatives, and bureaucrats with links to political parties whom the bank perceives as having a certain kind of influence.

Over the past years, HSBC has enhanced its ‘know your customer’ (KYC) and anti-money laundering procedures to ensure a more complete consideration of clients’ sources of wealth.