Gatehouse Bank fined $1.77M for inadequate customer due diligence

From 2014-17, Gatehouse failed to conduct proper due diligence on customers located in countries known to have a higher risk of money laundering and terrorist financing, as well as on customers classified as politically exposed persons (PEPs), the FCA said Friday in a press release.

The bank violated provisions of the U.K.’s Money Laundering Regulations 2007 by not conducting adequate due diligence to verify the identity of its customers or scrutinize the source of their funds or wealth; not conducting enhanced due diligence on customers who lived in high-risk countries or were PEPs; not adequately monitoring customers to ensure due diligence information was updated; and having inadequate internal controls to rectify the situation and inadequate compliance staff to do the work, the FCA said.

One of the countries in which the FCA found problems with Gatehouse’s customer due diligence was Kuwait, where Gatehouse accepted $62 million in aggregated customer funds over two years through a Kuwaiti company “without properly vetting the funds for financial crime risks,” the regulator said. Gatehouse relied on the company to gather information for AML purposes because it did not have direct relationships with the customers.

Of the $62 million handled by Gatehouse through the company, $44.65 million was found to be from as many as 26 PEP investors, the FCA said in its decision notice.

“This example illustrates the risks of failing to have proper systems and controls,” the FCA said.

Gatehouse bills itself as a Shariah-compliant bank that is “transparent, fair, and socially responsible,” according to its website. During the time of the violations, the bank specialized in offering Shariah-compliant investments in U.K. and U.S. real estate to investors, Shariah-compliant financing for real estate transactions, and banking and wealth management facilities to its customers, the FCA said.

Compliance considerations: Problems with the bank’s internal controls regarding AML policies dated back to 2013, the regulator said, but no steps were taken until over a year later. Even then, the actions taken were inadequate, according to the FCA’s notice.

Beginning in late 2016, Gatehouse’s front-line managers began collecting more information on the bank’s customers. Until that point, Gatehouse’s policies and procedures did not contain adequate practical guidance on how to establish a customer’s source of wealth or funds. Front-line personnel lacked an adequate understanding about the bank’s due diligence requirements and responsibilities.

Since at least 2016, the bank’s compliance function was inadequately resourced to fulfill its tasks, the FCA said.

Gatehouse response: “We accept the FCA outcome and can now draw a line under this old issue dating from 2014 to 2017,” a Gatehouse spokesperson said in an emailed statement. “The team has fully cooperated with the regulator and been engaged throughout the process. A thorough review during this period identified no cases of money laundering.

“The current executive team joined Gatehouse in 2017 in part to remediate this issue but also to develop a new retail strategy for the bank supporting homebuyers, landlords, and savers. Over the last five years, the bank has invested significantly in financial crime control capabilities to ensure we operate to the highest industry standards.”