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01 Aug 2023, 08:44 am

DFSA fines bank Mirabaud USD 3 million for anti-money laundering controls failings

The Dubai Financial Services Authority (DFSA) has imposed a fine of USD 3,022,500 (AED 11,100,131) on the bank Mirabaud (Middle East) Limited (‘Mirabaud’) for having inadequate anti-money laundering (AML) systems and controls between June 2018 and October 2021.

The fine includes disgorgement of USD 975,000 (AED 3,580,687), which represents Mirabaud’s economic benefit from its contraventions in the form of fees and commission. Mirabaud agreed to settle the matter, reducing the fine from USD 3,900,000 (AED 14,322,750).

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

- the accounts of seemingly unconnected entities being opened and operated by a small group of closely connected individuals;

- funds being deposited from third party accounts;

- the transactions being overly complex and inconsistent with the nature of the accounts and the information known about the customers;

- 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 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.

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

- outside the accounts’ expected activity;

- for purposes prohibited under Mirabaud’s own policies;

- inconsistent with the profile of the clients; and

- supported by information inconsistent with that which was already held about the customers.

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 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 Mirabaud failed to obtain suitable evidence of customers’ experience of financial markets, which was needed for the customers to be classified as Professional Clients. The DFSA identified a number of 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 onboard 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 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.

Ian Johnston, Chief Executive of the DFSA, said: "The DFSA is committed to promoting a robust AML control framework across the firms that it regulates.

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.”

A copy of the DFSA's Decision Notices can be found in the Regulatory Actions section of the DFSA website.

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