RIGA – The Board of the Financial and Capital Market Commission (FCMC) on 16.10.2018 decided to impose a fine of 2 205 282 euro on the joint stock company "LPB Bank" (hereinafter – the Bank) for breaches of the anti-money laundering and counter terrorist financing (AML/CTF) regulatory provisions; besides, the Bank was instructed to dismiss Member of the Board A. Kalveršs from the field of the AML/CTF compliance and issued a warning to above person. Other legal obligations upon the Bank under the decision include submission of action plan for addressing identified infringements and weaknesses to the FCMC for consideration within the specified deadline and an independent assessment of internal control system.
The FCMC carried out an on-site inspection and off-site target inspections of the Bank, examining customer transactions conducted up to 28.08.2018. The FCMC has repeatedly found out several breaches indicating to serious deficiencies in the Bank's internal control system in the AML/CTF field, as they have been detected in the most essential supervisory elements regarding customer due diligence and transaction monitoring. The Bank had failed to set up its internal control system appropriate to operational risks that would ensure efficient compliance with regulatory provisions, for example:
the Bank failed to document the manner how the beneficiary of customer exercised utmost control over the company and benefitted from the economic activities of the customer;
the Bank failed to timely obtain documents to verify the origin of the funds in the customer accounts, and whether the transaction volumes were proportionate to the amount of the funds received in the account;
the Bank failed to timely ensure customer due diligence and documentation of results, as well as conclusions in the customer cases were incomplete;
the Bank failed to document a reasoned judgement regarding the activities of a group of connected clients, including legal and economic substance of intra-group transactions;
the Bank failed to give sufficient weight to the unusually large, complex, inter-related transactions that have no apparent economic or visible lawful purpose, as well as failed to assess transactions with major cooperation partners and adequately document conclusions of due diligence, failed to timely obtain documents supporting customer business activities, failed to assess compliance of the business activities with the declared activities.
FCMC Chairman Pēters Putniņš: "Our decision is yet another sign that we are closely following how this area in the banking sector has been brought to order. Also other market participants should bear in mind that such deficiencies and system weaknesses are not permitted in any of Latvia's banks. Of course, it annoys us as a banking regulator that irregularities detected in the Bank have been already identified on several occasions and this has been continuous non-compliance, therefore the penalty is adequate to what we have established. I would like to emphasize that we will continue performing similar checks and other supervisory activities to ensure further development of the Latvian financial sector in line with the government's instructions and the management of the change in the financial sector pursuant to regulatory requirements."
The FCMC has already previously imposed sanctions on the Bank for identified breaches of anti-money laundering and counter terrorist financing (AML/CTF) regulations, as well as deficiencies in the Bank's internal control system. On 25.07.2016, an administrative agreement was entered into by the FCMC and AS "Latvijas pasta banka" (former name of the Bank) aimed at addressing weaknesses identified in the Bank's activities, and setting a number of legal obligations for the Bank. After expiry of legal obligations laid down in the administrative agreement the FCMC performed a repeated inspection of the Bank and established that the Bank's internal control systems in the AML/CTF had still failed to adequately meet provisions of the external and internal regulatory provisions.
The board of the credit institution is responsible for its overall operations, whereas for specific scope of activities – responsible board member. Breaches identified in the FCMC inspections relate to the period of time when the official responsible for the AML/CTF compliance was the Member of the Board Arnis Kalveršs, he is still in office. The FCMC concluded that A. Kalveršs had failed to ensure that adequate measures were taken in the Bank for the improvement of its internal control system in order to prevent violations of regulatory provisions. In view of above, the FCMC requested the Bank to dismiss Member of the Board A. Kalveršs from the field of the AML/CTF compliance and issued a warning to him.
In accordance with the FCMC's decision the Bank must submit to the FCMC an action plan within specified time period regarding elimination of weaknesses and deficiencies identified and take measures detailed in the plan in order to avoid further similar violations in the AML/CTF internal control system, as well as perform an independent assessment of compliance and efficiency of the Bank's internal control system involving sworn auditors firm.
The fine of 75% of maximum statutory amount has been applied to the Bank, i.e. 10% of the Bank's total annual turnover. The Bank shall pay the fine into the national budget within one month of taking effect of the administrative act.