DFSA fines Swiss bank Mirabaud $3m for anti-money laundering control failure

Transactions for nine interconnected client accounts under the same relationship manager raised concerns

The DIFC building, Dubai. The DFSA seeks to promote a robust AML control framework across the companies that it regulates. Photo: DIFC

The Dubai Financial Services Authority, the regulator of the Dubai International Financial Centre, has imposed a fine of $3.02 million on Swiss private bank Mirabaud (Middle East) for having inadequate anti-money laundering systems and controls between June 2018 and October 2021.

The fine includes disgorgement of $975,000, which represents Mirabaud’s economic benefit from its contraventions in the form of fees and commission, the regulator said in a statement on Tuesday.

Disgorgement is a remedy requiring a party who profits from illegal or wrongful acts to give up any profits they made as a result of that illegal or wrongful conduct.

Mirabaud agreed to settle the matter, reducing the fine from $3.9 million, the DFSA said.

“The DFSA is committed to promoting a robust AML control framework across the firms that it regulates,” Ian Johnston, chief executive of the DFSA, said.

“By failing to ensure that its AML systems and controls were effective, Mirabaud did not recognise clear indicators of potential money laundering or take the appropriate action when it had concerns about customers’ activity.

“The level of penalty imposed on Mirabaud reflects the importance of AML compliance in maintaining confidence in the integrity of the DIFC.”

The UAE has made significant progress in combating money laundering, the financing of terrorism and weapons proliferation over the past few years.

The Arab world’s second-largest economy seized and confiscated assets worth more than Dh4.73 billion ($1.29 billion) in the 12 months to the end of July 2022, as it stepped up its fight against money laundering and the financing of terrorism.

On Sunday, the country announced plans to establish federal prosecution offices dedicated to money laundering and other economic crimes. These will include corporate crimes, bankruptcy, regulation of competition, financial markets, intellectual property and trademarks and customs evasion offences.

The DFSA found that weaknesses in Mirabaud’s AML systems and controls meant that it processed transactions for a group of nine interconnected client accounts managed by the same relationship manager, which raised a number of red flags related to suspicions of money laundering, according to the statement.

The activities of the relevant customer accounts exhibited characteristics similar to those commonly seen in the layering phase of a money-laundering operation, the regulator said.

These included factors such as the accounts of seemingly unconnected entities being opened and operated by a group of connected individuals, funds being deposited from third party accounts and the transactions being overly complex and inconsistent with the nature of the accounts and the information known about the customers.

There were also significant funds being transferred overseas to third party entities with opaque ownership structures and bank accounts in jurisdictions different from those in which they were based, and funds flowing repeatedly between connected entities, the DFSA said.

“The DFSA did not make a finding that any of these transactions were in fact money laundering. However, the activity highlighted significant weaknesses in Mirabaud’s systems and controls and presented key indicators of potential money laundering that Mirabaud should have recognised and acted upon,” the authority said.

“Although Mirabaud put in place AML policies and procedures, they were ineffective.”

When processing transactions for this group of interconnected customers, Mirabaud failed to consider information it held about them, including that which had been obtained as part of the bank’s customer due diligence, according to the watchdog.

As a result, the bank processed a significant volume of transactions for these customers, both in quantity and value, over almost three and a half years.

The transactions were outside the accounts’ expected activity, for purposes prohibited under Mirabaud’s own policies, inconsistent with the clients’ profile, and supported by information inconsistent with that which was already held about the customers, the DFSA said.

“These weaknesses also meant that Mirabaud failed to identify and report suspicious transactions, including transactions stopped by its compliance department due to inadequate responses to its enquiries,” it said.

“It also failed to revisit customer due diligence information it held about the interconnected customers when its accuracy and adequacy had been called into question.”

The DFSA also found that the bank failed to obtain suitable evidence of customers’ experience of financial markets, which was needed for them to be classed as professional clients.

The regulator identified clients whose claimed experience of financial markets was based solely on an undocumented assessment of the client’s experience by the relationship manager seeking to engage the client.

“The same or similar explanations as to why customers could not provide evidence of their experience were used repeatedly, calling into question their credibility,” the DFSA said.

“The relationship manager responsible for these customers has since left Mirabaud, as have the individuals that held the roles of senior executive officer and chief compliance officer during the time these failings occurred.”