Mirabaud (Middle East) Limited is part of the international banking group headquartered in Geneva, Switzerland. The firm is incorporated in the Dubai International Financial Centre (DIFC) and authorised by the DFSA.
Summary of Decision
The DFSA’s investigation was prompted by a series of suspicious transactions between three associated groups of companies that held a total of nine accounts with MMEL, with the respective accounts being managed by a single relationship manager. The activities conducted between these accounts exhibited characteristics similar to those often seen during the layering phase of a money laundering operation.
Whilst the DFSA did not conclude that any of these transactions resulted in money laundering, the investigation highlighted significant breaches of the DFSA's AML rules in the operation of MMEL’s AML/CTF framework including failures in:
- establishing and maintaining systems and controls that ensure, as far as reasonably practical, that MMEL and its employees did not engage in conduct or facilitate others to engage in conduct, which may constitute financial crime under any applicable UAE laws;
- establishing and maintaining effective systems and controls to report suspected financial crime to the relevant authorities;
- establishing and maintaining policies, procedures, systems and controls in order to monitor and detect suspicious activity or transactions in relation to potential money laundering or terrorist financing;
- having in place policies, procedures, systems and controls to ensure that whenever any employee, acting in the ordinary course of their employment, either knows, suspects or has reasonable grounds for knowing or suspecting, that a person is engaged in or attempts money laundering or terrorist financing, that such employee promptly notifies MMEL's MLRO and provides the MLRO with all relevant details;
- conducting customer due diligence (CDD) on existing clients at appropriate times, such as when there was doubt over the veracity and adequacy of documents provided for the purposes of CDD; and
- performing adequate assessments when classifying clients as a 'Professional Client'.
The issues giving rise to the DFSA’s decision notice in relation to MMEL's AML/CTF failings relate to:
Inadequate AML/CTF Systems and Controls
- MMEL failed to comply with its own policy requirements in relation to: (i) receiving and making payments of a commercial nature versus for investment purposes only; (ii) receiving payments from third parties into client accounts which were classified as Politically Exposed Persons (PEP); and (iii) accepting clients who could not demonstrate that they were 'professional clients' by failing to provide portfolio statements evidencing their knowledge and trading experience.
- Ineffective anti-financial crime systems and controls which was evident by:
- the MMEL relationship manager circumventing MMEL's systems and controls "by providing or withholding information they knew to be misleading when preparing CDD documentation for the Associated Clients" ;
- MMEL Compliance failing to provide adequate challenge of the MMEL relationship manager's responses to matters raised and failing to undertake reviews when suspicions were raised;
- inadequate CDD files including client profiles of associated accounts not being accurate, updated, timely or reviewed periodically such that they became an ineffective control base-line for the AML/CTF Programme;
- a transaction monitoring system which did not flag suspicious activity. In fact, another international bank had asked for information from MMEL when its transaction monitoring system had flagged a transfer of approximately EUR 9.1 million from its customer into one of MMEL customer's accounts. MMEL Compliance responded to the request for information stating it was 'investment purposes only' despite evidence to the contrary;
- information which was available during the CDD process i.e. a small group of individuals were opening and operating the associated accounts, was not considered or questioned in relation to the activities/transactions of associated accounts such that they would have raised red flags about the risk of money laundering; and
- the flow of funds from various on-boarded client entities being opaque going through complex corporate structures without any economic substance, transferring and/or paying significant amounts repeatedly.
- A compliance culture by the first line of defence which resulted in MMEL Compliance as a function that needed to be informed on a selective basis and/or should be questioned about their challenge of client's intentions, motivations and explanations.
Suspicious Activities/Transactions
MMEL failed consistently to submit Suspicious Activity Reports to the Financial Intelligence Unit when suspicious transactions and/or payments were identified and not queried between the associated accounts including:
- CDD documentation that was incomplete or inadequate suggesting that the relevant entities were undertaking commercial activity and not for the purpose of holding assets and making investments. It should have been evident to MMEL once payments were made through the accounts that the entities were undertaking activities that suggested they were operational, that the lack of CDD information was not appropriate;
- during June 2018 and October 2021, there were twenty (27) transactions between the three groups involving various associated accounts with no clear or credible rationale;
- significant sums were transferred between entities of associated accounts which resembled the appearance of shell companies, recognisable by their overseas establishment, complex ownership structures and bank accounts located in multiple different jurisdictions; and
- the repeated flow of funds between the associated accounts added multiple layers to the flow, causing difficulty in tracing their source.
In light of the above, MMEL failed to establish and maintain effective policies, procedures, systems and controls to monitor and detect suspicious activity and transactions in relation to potential money laundering.
Whilst there were occasions giving rise to scrutiny from MMEL Compliance, these were overridden, not escalated nor actioned to the MMEL MLRO.
Professional Client Assessment
Contrary to MMEL's customer on-boarding policy, customers who failed to adequately demonstrate that they had the required level of knowledge and experience of financial markets should not have been classified as a 'Professional Clients'. Instead, MMEL relied on 'self-certification' that an individual had the requisite net assets or knowledge and experience to be classified as a 'Professional Client'.
Conclusion
In a data led environment, the importance of the client on-boarding process cannot be overstated. An accurate complete, timely and adequate client profile forms the basis upon which a "Relevant Person's" AML/CTF framework is effective.
The risk of financial crime can only be mitigated if regulated firms recognise and act upon 'red flags' from the client's activities, transactions and/or payments.
Criminals recognise and exploit the competing objectives of the financial services industry of generating revenues/profits versus a zero tolerance in breaching laws and regulations but the 'buck stops' with the boards and executive management of regulated firms in creating a culture of compliance rather than compliance being a Compliance department problem.
