Monetary Authority takes disciplinary action against State Bank of India for AML lapses

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The Monetary Authority (MA) has under section 21 of the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (Chapter 615 of the Laws of Hong Kong) (AMLO) (Note 1):-

  • (a)      ordered State Bank of India, Hong Kong Branch (SBIHK) to submit to the Hong Kong Monetary Authority (HKMA), by a date and in a manner to be specified by the MA, a report prepared by an independent external advisor assessing (i) whether the Remedial Plan of SBIHK (Note 2) is sufficient to address the contraventions found by the HKMA and (ii) the effectiveness of the implementation of the Remedial Plan;
  • (b)      ordered SBIHK to pay a pecuniary penalty of 7,500,000 Hong Kong Dollars; and
  • (c)      further the MA hereby reprimands SBIHK with respect to the contraventions of specified provisions of the AMLO set out below.

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 to comply with the requirements of the AMLO.

The HKMA’s investigation found that, between April 2012 and November 2013, SBIHK contravened four specified provisions, namely sections 3(1), 5(1), 19(1) and 19(3) of Schedule 2 to the AMLO.  In summary, SBIHK failed to:-

  • (a)       carry out the customer due diligence measures set out in sections 2(1)(a) and 2(1)(b) of Schedule 2 to the AMLO before establishing business relationships with 28 corporate customers;
  • (b)       continuously monitor its business relationships with its customers;
  • (c)       establish and maintain effective procedures for determining whether its customers or beneficial owners of its customers were politically exposed persons; and
  • (d)       establish effective procedures to ensure compliance with the specified provisions in sections 3 and 5 of Schedule 2 to the AMLO.

In determining the above disciplinary action, the MA has taken into account all of the relevant circumstances including mitigating factors such as that:-

  • (a)       SBIHK has taken very positive and intensive remediation work to address the contraventions identified in the HKMA’s investigation and other weaknesses identified in the HKMA’s onsite examination;
  • (b)       SBIHK has confirmed through an external consultant that neither actual problem accounts nor suspicious transactions have been identified; and
  • (c)       SBIHK has no previous disciplinary record and co-operated with the HKMA during the investigation.

Ms Meena Datwani, Director-General (Enforcement) of the HKMA, said, “This was a case of internal control failures relating to AML/CFT systems.  The HKMA takes such failures seriously and wants to send a clear message to the industry that all authorized institutions should have effective AML/CFT systems and controls in place to, among other things, detect and report suspicious transactions based on their knowledge of their customers.  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.”