Financial institutions and sanctions compliance
Angelika Hellweger considers a case that focused on a lack of due diligence and emphasises the importance of measures that ensure sanctions compliance.
A Swiss court found four bankers from Gazprombank’s Zurich branch guilty of failing to conduct proper due diligence checks into Russian cellist Sergei Roldugin, who has close links to President Vladimir Putin.
The four were given fines totalling 741,000 Swiss francs, suspended for two years, for the lack of background checks made regarding the opening and maintaining of accounts for Rodulgin, who is regarded as one of “Putin’s wallets”.
The court said there was no doubt that the musician, who is godfather to Putin’s daughter, was not the genuine owner of the millions of Swiss francs held in the accounts between 2014 and 2016. Approximately 30 million Swiss francs were involved in the case – despite the fact that Rodulgin had no listed any activity as a businessman. The court said the bankers should have asked questions about the source of the funds. Swiss law requires banks to reject or close accounts if there are doubts about the account holder’s identity or the source of the money.
Roldugin first met Putin back in the 1970s and they have retained close ties. Since Putin and the network of oligarchs were sanctioned due to Russia’s invasion of Ukraine, there has been an increased focus on how he has moved wealth around the world using a network of helpers.
Roldugin was exposed in the Panama Papers 2016 investigation that revealed his secret financial affairs and links to Putin. Another investigation revealed that the musician had laundered billions through what became known as the Troika Laundromat - a network of approximately 75 offshore companies – and received $70 million for doing so.
The Panama Papers showed that in 2008, a Roldugin-owned, Panama-based company sold 70,000 shares in the Russian state energy company Rosneft for more than US$800,000. This was then paid into Roldugin’s account at the Gazprombank Zurich branch. Roldugin has claimed the money was donations from Russian businessmen. But the revelations about him led to him being sanctioned by the European Union in March last year and by the United States last June.
Conducting appropriate due diligence is key to a financial institution’s sanctions compliance efforts. Meaningful due diligence requires a financial institution knowing what questions to ask, who needs to be asking them and what to do with the responses to those questions. A proper due diligence is only going to be as effective as a financial institution’s ability to gather and assess information. Financial institutions have to adopt appropriate risk-based procedures for onboarding customers and conducting ongoing customer due diligence that, among other things, enables the financial institution to:
- Understand the nature of customer relationships for the purpose of developing a customer risk profile, and
- Conduct ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information.
In the matter of Gazprombank, the financial institution and its employees in charge would have been well advised to take the following factors into account when considering the risk associated with the customer’s business or professional activity:
- Does the customer or beneficial owner have links to sectors that involve significant amounts of cash?
- Can the customer’s or beneficial owner’s source of wealth or source of funds be easily explained, for example through their professional activity, inheritance or investments?
- Is the customer’s or the beneficial owner’s background consistent with what the firm knows about their former, current or planned business activity, their business’ turnover, the source of funds and the customer’s or beneficial owner’s source of wealth?
- Does the customer have political connections? For example, are they a politically exposed person? Or is anyone publicly known to be closely associated with them a politically exposed person?
- Are there adverse media reports or other relevant sources of information about the customer? For example, have there been any allegations of criminality (including money laundering, corruption, unexplained wealth or terrorism) made against the customer? If so, are these reliable and credible?
But as well as this, investment in the training and development of employees regarding sanctions compliance procedures is an essential component of such compliance.