Publication of sanctions

BOX 6.6 Examples of Criminal Sanctions across Jurisdictions

United States. Prosecutors have powers to investigate and sanction financial institutions that do not comply with Us anti-money-laundering (AML) law. the Department of Justice has authority to bring criminal actions against financial institutions that breach their statutory and regulatory obligations. It also has criminal authority to pursue money-laundering violations and the ability to prosecute unlicensed money-transmitting businesses (FAtF 2015b).

British Virgin Islands. Administrative anti-money-laundering and combating terrorism financing (AML/CFt) breaches are handled either by the Financial services Commission or by the Financial Intelligence Agency. If, during this time, it is found that there is some criminal element to the breach, the matter is turned over to the police. Conversely, if the police encounter cases that may reveal a breach in the AML/CFt framework, this information is passed on to the police financial investigation unit for further investigation. the police can, through established memoranda of understanding, share information with the Financial Intelligence Agency and the Financial services Commission (FAtF 2015b).

Hong Kong SAR, China. the Custom and excise Department relies primarily on criminal investigations and prosecutions to sanction money service operators. Five money service operators were convicted between 2012 and 2017. Fines were imposed in four cases for a total of HK$270,000 (Us$34,400), and a 200-hour community service order was imposed in one case (FAtF 2019a).

Other Sanctions

In addition to administrative and criminal sanctions, competent authorities may take further measures should the breach be particularly serious. they can, for instance, combine fines with administrative and other disciplinary measures. the most severe disciplinary sanction a competent body can impose is the withdrawal of a license, which effectively terminates the activity of the financial institution. such measures must be applied independently of any sanctions that the courts may impose. the supervisor must be vested with the authority to file an application with a prosecutor when there are reasonable grounds to believe that the financial institution or its board members and senior management participated in ML/tF activities. In the case of a serious offense, the supervisor must have direct access to the prosecutor and be able to have the case prosecuted as a criminal matter, notwithstanding the supervisor’s ability to impose specific administrative or civil sanctions.

Furthermore, in some jurisdictions, stockholders of publicly traded financial institutions have brought lawsuits against members of the boards of directors and have succeeded in recovering monetary damages from individual members of the board.

PUBLICATION OF SANCTIONS

the question of whether imposed sanctions should be made a matter of public knowledge is not addressed in either the FAtF recommendations or the Basel Core Principles. However, the FAtF

guidance indicates that supervisors should consider publishing the results of the supervisory actions and providing information on the relevant entities’ deficiencies to address risks across the sector, as other entities take note of the consequences of similar failings. the FAtF guidance also stipulates that making supervisory sanctions public when appropriate may improve the transparency of enforcement (FAtF 2021, para. 44).

Practices vary widely across jurisdictions. some jurisdictions do not communicate publicly about sanctions for AML/CFt breaches, whereas others do. In the european Union (eU), for instance, the authorities of eU member states are required to publish on their official website all decisions to impose an administrative sanction or measure for breach of the national AML/CFt provisions; once the sanctioned institution is informed of that decision. there is no possibility of appeal (european Parliament 2018).

Publication of sanctions can be regarded as part of the “dissuasive” element of a sanctioning regime. It is the responsibility of each jurisdiction to determine, in light of its own legal regime and other circumstances, if sanctions are to be published. there are pros and cons to public disclosure, and each jurisdiction has to balance the pros and cons of publishing, including the names of offending institutions.

If sanctions are publicly disclosed, they have a deterrent function. In other words, other financial institutions become more cautious and more inclined to comply fully with AML/CFt requirements if they know that a failure to comply will be published. Publication, therefore, promotes stricter adherence to AML/CFt regulations within the financial sector. Furthermore, the publication of sanctions can be used as leverage. to some extent, the possibility of either making a sanction publicly available or keeping it confidential enhances the supervisor’s authority by reinforcing its power.

Disclosing the name of a financial institution that has been sanctioned can also be a means of reinforcing supervision internationally. If the name of the financial institution is disclosed in its home jurisdiction, supervisors in other jurisdictions in which the institution operates may decide to take prompt action and conduct on-site inspections of its branches. If a parent bank is not compliant, there are reasonable grounds to believe that its subsidiaries and branches abroad also fail to apply the AML/CFt policy correctly.

Conversely, there are several possible disadvantages to disclosing the name of a financial institution for violating AML/CFt regulations. Doing so can tarnish the reputation of the institution or, indeed, the sector as a whole and thus undermine public and investor confidence in the jurisdiction’s financial system. For that reason, in jurisdictions where the financial sector has been seriously weakened by a financial crisis in the past, authorities may be reluctant to disclose the names of institutions that breach AML/CFt regulations. Indeed, for entities in a weak financial situation, the publication of sanctions may create new stress and impede their financial recovery. they may not be able to access the interbank market for their own refinancing, and foreign banks may decide to terminate their correspondent relationships with them. some jurisdictions also believe that the public disclosure of AML/CFt failures—in addition to the other administrative, civil, and financial penalties imposed on a financial institution—is in effect a “double penalty,” because it sanctions the institution twice for the same violation. some jurisdictions favor an approach whereby decisions to disclose sanctions are made on a case-by-case basis, depending on their seriousness and frequency of occurrence. other jurisdictions may choose not to publish sanctions or may limit themselves to publishing limited or general information or only an anonymized decision.

Whatever their choices about the disclosure of specific sanctions, the authorities should adhere to the legal basis for such decisions and, where disclosure is permissible, should establish a clear policy on whether to publish or not.

Boxes 6.7 and 6.8 present examples of sanctions imposed in Bermuda and Luxembourg, respectively.

BOX 6.7 Example of Sanctions Imposed on Sun Life Financial Investments: Bermuda

the Bermuda Monetary Authority imposed civil penalties totaling Us$1.5 million on sun Life Financial Investments Ltd. pursuant to the provisions of section 20 of the Proceeds of Crime (Anti-Money Laundering & terrorist Financing supervision & enforcement) Act 2008 (BMA 2017). It also restricted the company’s investment business license pursuant to section 20 of the Investment Business Act 2003. the civil penalties were imposed for the company’s failure to comply adequately with the following requirements of the Proceeds of Crime Regulations 2008:

1. Apply customer due diligence measures;

2. Conduct ongoing monitoring of business relationships;

3. Cease transactions where it is not possible to apply customer due diligence measures;

4. Apply enhanced due diligence; and

5. establish and maintain appropriate and risk-sensitive policies and procedures.

some of the findings represented failings of the company to remediate similar findings from an on-site review conducted in 2013. the Bermuda Monetary Authority viewed these breaches as serious because of their extent and duration and because they demonstrated systemic weaknesses in the company’s internal anti-money-laundering and combating terrorism financing (AML/AtF) controls. the regulations have been in effect since 2009. this case highlights the importance of licensees having in place up-to-date AML/CtF policies and procedures that are appropriate, effective, and fully implemented in order to avoid the risk of financial products being used as a vehicle for money laundering or terrorism financing.

BOX 6.8 Example of an Administrative Sanction Imposed on a Credit Institution: Banque Internationale à Luxembourg S.A.

on March 16, 2020, the Commission de surveillance du secteur Financier (CssF) imposed an administrative fine amounting to €4.6 million on the credit institution Banque Internationale à Luxembourg s.A. (CssF 2020). the fine was imposed on the basis of the provisions of Article 2-1, paragraph (1) and Article 8-4, paragraphs (1), (2), and (3) of the amended Law of november 12, 2004, on anti-money-laundering and combating terrorism financing (AML/CtF), following two on-site inspections carried out by the CssF between october and november 2017 and between July and september 2018 on the premises of the bank. these inspections identified certain weaknesses in the bank’s processes for monitoring a small segment of customers whose inherent risk was generally considered to be high. the bank reacted promptly to remediate the identified weaknesses. the amount of the fine imposed was proportional to the turnover of the bank, in line with applicable rules.