Final Notice 2020 Commerzbank AG

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of being used for criminal purposes including the risk of being used to facilitate. money laundering or terrorist financing, 2 2 To mitigate this risk UK firms must take reasonable care to organise and control. their affairs responsibly and effectively and to establish and maintain an effective. risk based anti money laundering AML control framework and also must. comply with the applicable Money Laundering Regulations The obligations on a. firm under the Money Laundering Regulations 2007 the ML Regulations. 2 2 1 ensuring that it has appropriate risk based procedures for applying. customer due diligence measures CDD when establishing a business. relationship or carrying out a transaction for a customer. 2 2 2 applying CDD at other appropriate times to existing customers on a risk. sensitive basis, 2 2 3 applying scrutiny to transactions undertaken throughout the course of. their relationship with a customer, 2 2 4 keeping documents data or information obtained for the purposes of. applying CDD measures up to date, 2 2 5 applying on a risk sensitive basis enhanced customer due diligence. measures EDD and enhanced ongoing monitoring in any situation. which by its nature may have presented a higher risk of money laundering. or terrorist financing and, 2 2 6 establishing and maintaining appropriate and risk sensitive policies and.
procedures relating to the above, 2 3 Commerzbank AG Commerzbank is a large international commercial bank. headquartered in Frankfurt which operates in the UK through its branch. Commerzbank London Many of Commerzbank s global customers use products. and transaction platforms managed through Commerzbank London which also. acted as a hub for sales trading and the due diligence process for a significant. number of global customers, 2 4 Commerzbank London was required pursuant to the Authority s Principles for. Businesses the Principles to take reasonable care to organise its affairs. responsibly and effectively with adequate risk management systems. Commerzbank London was also required to have policies and procedures in place. comprehensive and proportionate to its business activities to enable it to identify. assess monitor and manage money laundering risk, 2 5 Between 23 October 2012 and 29 September 2017 the Relevant Period it. failed to meet these requirements and in doing so breached Principle 3 In. particular, 2 5 1 There were shortcomings in Commerzbank London s financial crime. controls applicable to intermediaries i e introducers and distributors. 2 5 2 The Skilled Person identified instances where the way that Commerzbank. London identified and considered the risks associated with politically. exposed persons PEPs was inadequate, 2 5 3 Certain business areas did not always adhere to Commerzbank London s.
policy of verifying the beneficial ownership of clients including high risk. clients from a reliable and independent source, 2 5 4 There was no comprehensive documented process or criteria for. terminating a relationship with an existing client for financial crime risk. 2 5 5 A significant backlog of existing clients being subject to timely refreshed. know your client KYC checks developed during the Relevant Period. in part because Commerzbank London s first and second lines of defence. tasked with carrying out key AML controls were throughout the Relevant. Period understaffed For example in mid 2016 the Financial Crime. Team in Compliance consisted of just 3 full time employees when in mid. 2018 following an acknowledgement by Commerzbank London of the. need to dramatically increase staff in this area this was increased to 42. full time employees In October 2016 1 720 new clients were in a huge. backlog awaiting to be onboarded and by February 2017 2 226 existing. clients were overdue refreshed KYC checks Whilst steps were taken to. reduce the backlog during the Relevant Period these measures were. taken too late and effected too slowly, 2 5 6 Risk and issue owners were not clearly articulated or understood by. Commerzbank London s committees This led to a lack of clarity around. responsibilities which impacted the Front Office CLM and Compliance. 2 5 7 An exceptions process put in place from May 2016 to permit existing. clients to continue to transact with Commerzbank London despite not. having been subject to timely periodic KYC checks became as at the end. of 2016 out of control with both senior branch management and. Compliance lacking understanding and adequate awareness of the. process In one example a high risk client who was nearly 5 years. overdue KYC refresh entered into 16 transactions with Commerzbank. London whilst overdue KYC refresh with Commerzbank London. generating net revenue of 273 799 from these transactions and. 2 5 8 Commerzbank London s automated tool for monitoring money laundering. risk on transactions for clients was not fit for purpose and did not have. access to key information from certain of Commerzbank s transaction. 2 6 As a consequence of these inadequacies in its AML control framework. Commerzbank London was unable to adequately identify assess monitor or. manage its money laundering risk It therefore had not established implemented. or maintained adequate policies and procedures to ensure its compliance with its. obligation to counter the risk that the firm might be used to further financial crime. 2 7 Commerzbank London s failings are particularly serious because they occurred. following visits by the Authority to Commerzbank London in 2012 2015 and 2017. to discuss issues relating to its AML control framework during which the Authority. identified weaknesses that Commerzbank London was to address They also. occurred against a background of heightened awareness within Commerzbank of. weaknesses in its global financial crime controls following action taken by US. regulators in 2015 although the AML failings identified by US regulators did not. involve Commerzbank London The Authority notes that there is no evidence of. financial crime having been occasioned or facilitated by Commerzbank London s. 2 8 In March 2017 due to the concerns raised by the Authority in respect of its. financial crime control framework Commerzbank London initiated a large scale. remediation project relating to its financial crime controls the London. Remediation Programme and on 22 May 2017 Commerzbank London was. issued a requirement by the Authority to appoint a Skilled Person under section. 166 of the Act, 2 9 Commerzbank London has worked with the Skilled Person to improve its financial. crime controls and from 28 September 2017 implemented wide ranging business. restrictions the Business Restrictions which included temporarily ceasing. onboarding new high risk customers ceasing new business with existing high risk. customers in respect of which a material change review or periodic review was. overdue and suspending all new trade finance business activities A voluntary. undertaking to maintain the Business Restrictions was entered into with the. Authority on 20 December 2017 the Undertaking, 2 10 The London Remediation Programme is now complete The Business Restrictions. remain in place albeit that Commerzbank London has requested that these be. gradually lifted, 2 11 The Authority hereby imposes on Commerzbank a financial penalty of.
37 805 400 pursuant to section 206 of the Act,3 DEFINITIONS. 3 1 The definitions below are used in this Notice, The Act means the Financial Services and Markets Act 2000. AML means anti money laundering, AOP has the meaning ascribed to it in paragraph 4 8. The Authority means the body corporate previously known as the Financial. Services Authority and renamed on 1 April 2013 as the Financial Conduct. The Business Restrictions means the business restrictions itemised in. paragraphs 4 128 1 to 4 128 6, C M means the Corporates Markets Division of Commerzbank. CDD means customer due diligence measures as defined in Regulation 5 of the. ML Regulations, CLM means the Client Lifecycle Management team at Commerzbank London.
introduced in March 2015 as part of a rebranding of its predecessor team the. Client Onboarding Services team COS COS replaced the Client Verification. Team CVT in November 2012 Each of CLM COS and CVT performed. substantively the same functions for the purposes of this Notice References to. CLM in this Notice other than when expressly stated are to CLM COS or CVT. depending on the date, Corporate GIC means a GIC issued by an MSB I branch to other business units. for example C M in respect of a corporate client, DEPP means the Authority s Decision Procedures and Penalties Manual. DFS means the New York State Department of Financial Services. EDD means enhanced customer due diligence measures applied in. circumstances as set out in Regulation 14 of the ML Regulations. EMC means the Equity Markets Commodities business division of. Commerzbank, The Expiry Exceptions List has the meaning ascribed to it in paragraph 4 78. The FCT means the Financial Crime Team, FI GIC means a GIC issued by MSB FI to financial institution clients. GIC means Group Introduction Certificate Commerzbank could use a GIC when. introducing a customer of 1 Commerzbank office to another overseas office. Handbook means the Authority s Handbook of rules and guidance. ISIS has the meaning ascribed to it in paragraph 4 8. JMLSG means the Joint Money Laundering Steering Group The JMLSG is a body. comprised of the leading UK trade associations in the financial services sector. JMLSG Guidance means the guidance that was applicable during the Relevant. Period issued by the JMLSG and approved by the Treasury on compliance with. the legal requirements in the ML Regulations the regulatory requirements in the. Handbook and evolving practice within the financial services industry The JMLSG. Guidance sets out good practice for the UK financial services sector on the. prevention of money laundering and combatting of terrorist financing. KYC means know your client, KYC refresh has the meaning ascribed to it in paragraph 4 69.
London Remediation Programme has the meaning ascribed to it in paragraph. ML Regulations means the Money Laundering Regulations 2007 which were in. force in respect of conduct from 15 December 2007 to 25 June 2017 inclusive. MLRO means Money Laundering Reporting Officer, MSB means Mittelstandsbank a business division of Commerzbank. MSB I means MSB International a business division of Commerzbank. MSB FI means MSB Financial Institutions, PEP means a Politically Exposed Person as defined in Regulation 14 5 of the ML. Regulations, PBS means the Private Banking Sales business area of Commerzbank London. The Primary Transaction Monitoring Tool has the meaning ascribed to it in. paragraph 4 98 1, The Refresh Backlog has the meaning ascribed to it in paragraph 4 75. Relevant Period means 23 October 2012 to 29 September 2017. SAR means suspicious activity report, The Skilled Person means the skilled person appointed by Commerzbank London.
pursuant to a requirement dated 22 May 2017 imposed by the Authority under. section 166 of the Act,The Treasury means Her Majesty s Treasury. The Tribunal means the Upper Tribunal Tax and Chancery Chamber. The Undertaking has the meaning ascribed to it in paragraph 2 9. The US Monitor has the meaning ascribed to it in paragraph 4 124 and. The 2015 CLM KYC Procedure means the document titled Corporates Markets. Client Lifecycle Management Know your Customer KYC procedures version. dated 4 September 2015,4 FACTS AND MATTERS,Background. 4 1 Commerzbank AG is a large international commercial bank headquartered in. Frankfurt offering a range of financial services for clients Commerzbank operates. in the UK through a branch and has done so since 1973 Commerzbank London. offers services to commercial clients rather than retail customers Each of. Commerzbank s business divisions are managed by a member of the Board of. Managing Directors and all management functions sit within a Group. management structure, 4 2 Commerzbank London is an international corporate banking branch and many of. the customers of both Frankfurt and other international branches use products. and transaction platforms managed centrally in London Throughout the Relevant. Period Commerzbank London acted as a hub for sales and trading for a number. of global customers and generated an average annual total revenue of. approximately 750 million between 2013 and 2017 out of Commerzbank s. average annual total revenue between 2013 and 2017 of approximately 12 6. billion Throughout much of the Relevant Period Commerzbank London acted as. a hub for the business by providing KYC onboarding and review services for a. number of jurisdictions other than the UK, 4 3 Firms are required by the ML Regulations and by the Authority s Rules to establish. and maintain appropriate risk sensitive policies and procedures to minimise the. risk of them being used by those seeking to launder the proceeds of crime evade. financial sanctions or finance terrorism This includes establishing and. maintaining systems and controls to identify assess and monitor money. laundering risks as well as conducting CDD EDD and ongoing monitoring of both. existing business relationships and transactions to manage the risks identified. 4 4 From the start of the Relevant Period to 31 December 2016 2 of Commerzbank s.

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