Money Laundering Reporting Officer

Anti-money laundering (AML) is one of the key initiatives of financial regulators who are keen on penalizing firms with lax AML controls. But it is rare that even the money laundering reporting officer (MLRO) would also be fined.

UK FSA recently fined Sindicatum Holdings Limited (SHL) £49,000 and its MLRO, Michael Wheelhouse, £17,500 for not having adequate AML systems and controls in place for verifying and recording clients' identities. This is the first time the FSA has fined a MLRO.

FSA found a number of failings including:

• the firm failed to implement adequate procedures for verifying the identity of its clients;
• it failed to verify adequately the identity of a significant number of its clients;
• it failed to keep adequate records with regard to the verification of the identity of its clients; and
• Wheelhouse failed to take reasonable steps to implement adequate procedures for controlling money laundering risk.

SHL and Mr Wheelhouse have taken robust steps to review and improve the firm's systems and controls in relation to financial crime. FSA did not find any evidence of money laundering at the firm (otherwise I believe the penalty would be much more severe).

More details about Wheelhouse are found at FSA's Final Notice against him:

• Mr Wheelhouse jointly founded SHL and has been a director of the firm since it commenced regulated activities in Aug 2002.
• SHL is a corporate advisory firm with approximately 35 clients for whom it has periodically advised and arranged dealing in investments. Its clients are predominantly small and medium corporates based overseas. During the relevant period, SHL provided 26 of these clients with services which constituted the carrying on of regulated activities and were thus subject to the identification requirements of FSA's AML regime.
• Although Wheelhouse set up a New Business Committee in Nov 2006 to monitor the introduction of new business and took advice from independent consultants, this was insufficient to ensure or improve compliance with SHL's procedures and FSA's requirements.
• In respect of 13 clients (who were not low risk), although some customer due diligence ("CDD") evidence was available, Wheelhouse failed to ensure that the documentation was adequate to verify their identity.
• Wheelhouse did not ensure that all client acceptance checklists were completed. In 7 cases, client acceptance checklists were not fully completed for significant periods of time (up to 3 years) after client take-on and in some cases they were not completed at all.
• On one occasion, Wheelhouse applied an exemption from identification to a deposit-taking bank in Lithuania, despite Lithuania not appearing on the "equivalence" list for regulated entities. On this occasion, Mr Wheelhouse acted as the account executive collecting the identification evidence and also as the officer reviewing and signing off the account. Such an arrangement decreased the likelihood of this failure being identified.

I really suspect if Wheelhouse was a competent and independent MLRO.