Getting your principles right – On new regulations to combat money

On 30 October, eleven of the world’s biggest banks agreed a set of global anti-money laundering principles for international private banks.

The Wolfsberg principles are designed to be a first step in a global standard of due diligence for banks in relation to money laundering. It is intended to leave to the individual banks the establishment of specific policies and procedures to implement the principles.

The principles do not extend the legal obligations of banks in the UK which are subject to the Money Laundering Regulations 1993 or banks elsewhere in the EU which are subject to the EC Directive 1991/308. In addition, they do not have any direct legal effect on banks, although UK courts might have regard to them in considering the scope of banks’ obligations under the regulations. However, the principles do highlight areas of concern not considered in previous rules. These areas include a need for care in private banking to prevent money laundering, the need for bankers to investigate the client’s source of wealth and heightened scrutiny of clients who are, or have been, public officials.

The most significant of these areas is the obligation to identify source of wealth. The first principles states that ‘the bank should endeavour to accept only those clients whose source of wealth and funds can be reasonably established to be legitimate. The primary responsibility for this lies with the private banker who sponsors the client for acceptance.

Mere fulfilment of internal review procedures does not relieve the private banker of this primary responsibility’.

Most of the 11 banks already maintain internal best practice guidelines.

However, this initiative will not only have the effect of raising awareness at the 11 banks, but also at other banks – particularly those in countries where there are inadequate money laundering rules. It is also hoped other banks will apply the principles and that they will be adopted by international banking organisations.

The principles will not be the ultimate solution in the battle to counter money laundering, but they will serve as a further prompt to banks as to the extent of the problem and the urgent need to institute controls to prevent money laundering.

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