Investment Services UK Limited

FCA action

fine

1

in fines

£175k

most recent

November 2005

• Fined £175,000 on 8 November 2005

  On 7 November 2005 the FSA imposed a financial penalty of £175,000 on Investment Services UK Limited (ISUK) for breaches of Principles 2 and 3 of the FSA's Principles for Businesses and of Rules 2.1.1 R, 3.1.3 R (1), 3.1.3 R (2), 6.3.1 R and 7.3.2 R (1) of the FSA's Money Laundering Sourcebook. 2. On the same date the FSA imposed a financial penalty of £30,000 on Ram Melwani for breaches of Statement of Principle 2 and 7 of the FSA's Statements of Principle for Approved Persons and for being knowingly concerned in the contraventions by ISUK. 3. The FSA took action because of the following serious failings: (1) ISUK put in place arrangements that, in effect, allowed non-resident, high net worth individuals (the individuals) access to banking facilities in the UK for the purpose of making investments without the bank in question (the Bank) being aware that the individuals were using those accounts. Whilst ISUK was aware of the names of the individuals, who it claims were relatives or associates of their clients, ISUK did not take steps to verify their identities. The Bank was unaware that these individuals were using the accounts to carry out transactions with their funds. Although there is no evidence to show that the individuals and transactions were not legitimate, ISUK did not provide the Bank with the appropriate information to assess the risks to which it was exposed and the individuals were in effect being provided with anonymous accounts; (2) in respect of a number of clients, ISUK presented introduction certificates to the Bank which contained misleading statements about the extent of the due diligence ISUK had undertaken and the amount of documentation which ISUK held in relation to its clients; (3) in relation to the small number of clients taken on after December 2001, ISUK did not collect and record sufficient evidence of its clients' identity to comply with the FSA's Money Laundering Sourcebook. Although ISUK undertook some due diligence in respect of its clients, it had no formal procedures for identifying its clients or anti-money laundering (AML) procedures during this time; and (4) between December 2001 and 31 December 2004, ISUK did not provide any AML training for its staff. 4. As Managing Director of ISUK, Ram Melwani was aware of the above contraventions by ISUK. He did not act with due skill, care and diligence nor did he take reasonable steps to ensure that ISUK complied with the relevant requirements and standards of the regulatory system in respect of his role. 5. Both ISUK's and Ram Melwani's breaches are viewed as being particularly serious because of the following: (1) although ISUK's clients were either personally known to the Melwani family or were introduced by existing clients, their profile represents a high risk in terms of money laundering. They are high net worth individuals operating via corporate vehicles established for trading purposes and incorporated in offshore jurisdictions. Several of these jurisdictions do not have anti-money laundering controls that are equivalent to those operating in the UK. Three of these companies have issued bearer shares; (2) over £8 million entered the UK financial system without the Bank being aware of the identities of the owners of these funds or the source of these funds. The Bank was therefore not able to make an appropriate consideration of the risks involved in operating accounts for these individuals; (3) the lack of AML procedures has continued since before 1 December 2001. ISUK at all times disregarded its responsibility to verify the identity of its clients. The Bank placed some reliance on ISUK to carry out such due diligence. In addition, ISUK did not apply to the FSA for approval of its Money Laundering Reporting Officer under the Approved Persons regime, although it has now made that application; (4) the FSA identified ISUK's breaches of the FSA's regulatory requirements. If it had not done so, it is likelythey would have continued; and (5) the use of Introduction Certificates by financial firms is an important facet of the UK's AML regime. The ability of a firm to rely in certain circumstances on the due diligence undertaken by another regulated firm is intended to avoid duplication of effort by firms and unnecessary burdens on consumers. 6. The breaches by ISUK and Ram Melwani merit a significant penalty. In fixing the amount of such penalty, however, the FSA has recognised that the actual and potential impact of these breaches has been mitigated by the remedial action undertaken by ISUK. In particular, ISUK: (1) on being informed by the FSA of the requirement to notify the Bank in respect of the unidentified individuals, ISUK took immediate remedial action, including full disclosure to the Bank within a short period of time. The Bank has since continued to maintain its business relationship with ISUK and offer its banking facilities to ISUK's clients; and (2) ISUK has engaged professional advisors to review its AML procedures and to assist in ongoing monitoring of ISUK's compliance with applicable legal and regulatory requirements. All staff have now received AML training. 7. While ISUK's and Ram Melwani's breaches are viewed as serious, it is acknowledged that there is no evidence that money laundering has in fact taken place. It is also accepted that neither ISUK nor Ram Melwani deliberately sought to mislead the Bank. 8. Both ISUK and Ram Melwani have been open and co-operative with the FSA during its investigation. Were it not for the co-operation shown and the remedial action taken by ISUK, the financial penalties proposed would have been significantly higher.