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Turkish Bank fined £294,000 for violation

October 24, 2012

Turkish Bank has settled with Britain’s financial regulator for breaking rules written to prevent money laundering.  What’s surprising about this story is that the U.K. had already warned Turkish Bank about its practices, but the bank continued the same behavior anyway.  One wonders who exactly, such as corrupt politicians in the Middle East, may have been depositing funds into Turkish accounts without adequate screening procedures.

From this month’s edition of Anti-Money Laundering Magazine:

Turkish Bank loses its sweetness

The Financial Services Authority (FSA) has fined Turkish Bank (UK) Ltd (TBUK) £294,000 for breaching the Money Laundering Regulations 2007 (MLR).

These breaches – which related to TBUK’s correspondent banking arrangements – were widespread and took place over two-and-a-half years. They led to an unacceptable risk that TBUK could have been used to launder money. This is the first occasion in which the FSA has taken enforcement action against a firm in relation to money laundering weaknesses in its correspondent banking arrangements.

TBUK is a wholly owned subsidiary of Turkish Bank Limited which is incorporated in Northern Cyprus. TBUK’s customer base is mainly retail. TBUK offers a range of financial services, including correspondent banking. Correspondent banking involves a bank (correspondent) providing banking services to an overseas bank (respondent) to enable the respondent to provide its own customers with cross-border products and services, such as payment and clearing that it cannot provide them with itself. TBUK acted as a correspondent bank for nine respondent banks in Turkey and six respondent banks in Northern Cyprus between 15 December 2007 and 3 July 2010.

Under the MLR, providing correspondent banking services to banks based in non-European Economic Areas states is recognised as creating a high risk of money laundering that requires enhanced due diligence and ongoing monitoring of the relationship. During this period, Turkey and Northern Cyprus did not have anti-money laundering (AML) requirements that were equivalent to those in the UK.

The FSA visited TBUK in July 2010 as part of a thematic review of how banks operating in the UK were managing money laundering risks. This thematic review resulted in the eye-popping report released in July 2011. It contained alarming findings. The FSA’s visit to TBUK gave serious cause for concern in relation to TBUK’s AML controls over correspondent banking leading to this enforcement action.

TBUK’s breaches of the MLR included failing to:

  • establish and maintain appropriate and risk-sensitive AML policies and procedures for its correspondent banking relationships
  • carry out adequate due diligence on, and ongoing monitoring of, the respondent banks it dealt with and failing to reconsider these relationships when this was not possible
  • maintain adequate records relating to the above.

While not deliberate or reckless, these failings were more serious because the FSA had previously warned TBUK of deficiencies in its approach to AML controls over correspondent banking.

Tracey McDermott, Acting Director of the Enforcement and Financial Crime Division, said: “Turkish Bank fell far short of the standards we expect of firms in managing their money laundering risks. This was despite clear warnings from the FSA that it needed to improve”…

In other news, Turkey faces expulsion from the Organization for Economic Cooperation and Development for its insufficient efforts in “blocking the financing of terrorist groups” if it doesn’t tighten its laws within four months.

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