The Hong Kong central bank on Friday penalised State Bank of India’s Hong Kong branch USD 1 million (Hong Kong dollar 7.5 million) for alleged violation of local anti-money laundering and counter-terror financing laws.
In its first action since the Hong Kong’s Anti Money- Laundering Ordinance came into force in 2012, the Hong Kong Monetary Authority (HKMA) said the SBI branch between April 2012 and November 2013 failed to carry out customer due diligence before establishing business relationships.
The branch also failed to monitor business relationships with its customers and verify whether its customers were politically exposed persons, the HKMA said in a statement.
The HKMA “reprimanded” SBI’s Hong Kong branch for the contraventions and ordered it to submit a report by an independent external advisor on sufficiency of remedial plan and effectiveness of its implementation.
This is the first action by the HKMA under Hong Kong’s Anti Money-Laundering Ordinance, which came into force in 2012.
Meena Datwani, Director-General (Enforcement) of the HKMA, said, “This was a case of internal control failures” relating to anti-money laundering and counter-terrorist financing (AML/CFT) rules.
“The HKMA takes such failures seriously and wants to send a clear message to the industry that all authorised institutions should have effective AML/CFT systems,” she said.
While SBI Hong Kong (SBIHK) said, “As a member of the Hong Kong banking community for over 35 years, SBIHK is committed to a policy of zero tolerance of non-compliance with regulatory guidelines supported by a robust compliance and risk function, while providing the products and services to our esteemed customers. We fully support the HKMA’s efforts to ensure high standards of due diligence and monitoring among Hong Kongâ€™s financial institutions.”
It said “neither the HKMA nor the external consultants found any instances of problem accounts or suspicious transactions during the period in question, or the years following.”
“As noted by the HKMA, we have undertaken very positive and intensive remediation work to address their findings, which refer to procedures and policies in place during 2012 and 2013,” it said in an emailed statement.
These controls help detect and report suspicious transactions based on their knowledge of their customers, Datwani said.
“These are fundamental to combating money laundering and terrorist financing and thereby maintaining the integrity of the banking system and the reputation of Hong Kong as an international financial centre. The HKMA will take appropriate enforcement action to deter any lapses in this regard,” Director-General (Enforcement) of the HKMA said.
According to the SBIHK statement, in determining the disciplinary action, the HKMA took into account the fact that “SBIHK has taken very positive and intensive remediation work to address the contraventions” as well as “confirmed through an external consultant that neither actual problem accounts nor suspicious transactions have been identified.”
“SBIHK has no previous disciplinary record and co-operated with the HKMA during the investigation,” it added.
The HKMA was given powers in 2012 to supervise banks’ compliance with Hong Kong’s anti-money laundering law, introduced in the same year.
State Bank of India, Hong Kong Branch (SBIHK) has been ordered “to submit to the HKMA… a report prepared by an independent external advisor assessing whether the remedial plan of SBIHK is sufficient to address the contraventions found and the effectiveness of the implementation of the remedial plan”, as per the the Hong Kong Monetary Authority statement.
Besides the SBI branch has been ordered to pay a pecuniary penalty of 7,500,000 Hong Kong dollars, it said.
“The action follows the HKMA’s investigation which was conducted to ascertain whether SBIHK had proper internal controls in its anti-money laundering and counter-terrorist financing (AML/CFT) systems,” the HKMA statement added.
HKMA said its investigation found that between April 2012 and November 2013, SBIHK contravened four specified provisions.
There were failures to carry out the customer due diligence before establishing business relationships with 28 corporate customers and maintaining effective procedures to ensure compliance with the law, it added.