Finance watchdog fines PrivatBank €1m for anti-money laundering violations

Take note – story published 4 years and 9 months ago

Latvia's finance watchdog, the Financial and Capital Markets Commission (FKTK) on September 13 decided to fine PrivatBank €1,019,319 for anti-money laundering violations, the FKTK told the press September 18.

The regulator said it had found "serious shortcomings in the bank's internal control system", blasting PrivatBank's anti-money laundering committee as ineffective and saying some of its decisions served the bank's shareholders.

In addition, failures were discovered in client monitoring and identifying true beneficiaries. 

"The FKTK carried out an on-site inspection of the Bank, during which the FKTK identified a
number of breaches concerning the Bank's internal control system, customer base risks and
their management. The violations indicate serious shortcomings in the Bank's internal
control system in the area of prevention of money laundering and terrorism and
proliferation financing, as they have been detected in the key elements of customer due
diligence and transaction monitoring. The Bank had not established an adequate internal
control system to meet its risks in the field of prevention of money laundering and
terrorism and proliferation financing, which would ensure effective compliance with the
regulatory requirements." 

The activities of the Bank's committee in charge of the prevention of money laundering and terrorism and proliferation financing were deemed "ineffective, [and] did not ensure the implementation of measures for mitigation of money laundering and terrorism and proliferation risks, as well as the individual decisions taken were favourable to individual shareholders of the Bank."

The bank was fined 90% of the maximum – equivalent to 10% of annual turnover – allowed under the law, and the fine has to be paid into the state budget within a month.

The bank was last fined a modest €35,000 in 2017 as part of action against it and two other banks that were revealed to have been used to channel funds to North Korea through offshore companies.

In 2016 the bank's Italian branch was shut down over suspicions it was engaged in large-scale money-laundering. 

In 2015 – when such fines were still uncommon – Ukrainian-owned PrivatBank was fined €2 million for failing to take proper precautions against massive money-laundering, and FKTK ordered the replacement of its entire board.

According to Finance Latvia, PrivatBank was the twelfth-largest bank in Latvia by assets in June 2019 and worked with a loss of €706,000 in the first half of this year, down from posting a loss of €1.65 in the same period last year.

On its website, PrivatBank claimed the fine was "based on the results of the audit of efficiency of the internal control system in the AML area, which has been conducted in the Bank in 2017," suggesting it had taken two years for the penalty to come to pass.

"The Bank management respects the FKTK conclusions, takes them into consideration and undertakes to completely eliminate the stated faults, improving the internal control system of the Bank," PrivatBank said - repeating exactly the same promise it was making as far back as 2016.

Then at the very start of 2017 it said it was investing 2 million euros in anti-money laundering measures and boasted of its a "genuinely high level of integrity in the Bank’s daily operations". 

Six months later in June 2017 it said action taken against it by FKTK in connection with sanctions-busting was because of actions carried out in 2013 and 2014, failing even to mention that it had been fined but promising "to further improve its internal control systems."

In May PrivatBank Latvia said it had 224 employees and operated 13 branches. As at 31 December 2018 the Bank’s total assets were EUR 200.9 million, it said.

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