The FCA has published a decision notice in respect of Mohammed Ataur Rahman Prodhan, the former CEO of Sonali Bank (UK) Limited ("SBUK"). The FCA is seeking to impose a financial penalty of £76,400 on Mr Prodhan for failing to exercise due skill, care and diligence in managing and fulfilling the responsibilities of his role as the senior manager for AML systems and controls. Mr Prodhan has now referred the matter to the Upper Tribunal.
Previously, in October 2016, the FCA fined SBUK £3,250,600 and imposed a temporary restriction in respect of accepting deposits from new customers for failings in relation to AML systems and controls. The FCA also imposed a financial penalty of £17,900 on the MLRO and an order prohibiting him from performing certain controlled functions.
In April 2010, Mr Prodhan was appointed CEO of SBUK and senior manager responsible for the establishment and maintenance of effective AML systems and controls. According to the FCA, Mr Prodhan was warned on many occasions about the seriousness of AML issues as well as being aware of the concerns raised in a 2012 Internal Auditors' report in relation to SBUK's governance and AML transaction monitoring processes. Yet, Mr Prodhan still failed to take reasonable steps to ensure that AML risks were adequately identified, assessed and documented.
The FCA found that although some of the issues at hand existed before the appointment of Mr Prodhan, all of the failings were a direct consequence of insufficient oversight of AML systems and controls by the board of directors and senior management. The FCA concluded that Mr Prodhan was in breach of Statement of Principle 6 (to exercise due skill, care and diligence in managing the business of the firm for which he was responsible) and was knowingly concerned in SBUK's breach of Principle 3 (to take reasonable steps to ensure that a firm has organised its affairs responsibly and effectively, with adequate risk management systems).
In particular, this related to failures
- to take AML risks into account sufficiently when planning SBUK's strategic direction and when making the decision to expand SBUK's business;
- to take reasonable steps to assess or mitigate the AML risks stemming from a culture of non-compliance among SBUK's staff;
- to take reasonable steps to ensure that sufficient focus was given to AML systems and controls within SBUK, that there was a clear allocation of responsibilities to oversee SBUK's branches and that he appropriately oversaw, managed and adequately resourced SBUK's MLRO function;
- to investigate or request an explanation for continuously low levels of SAR submissions;
- to adequately discharge his responsibility to report to the board with respect to the operation of AML systems and controls;
- to provide adequate challenge to the MLRO's assertions that AML controls were effective;
- to take reasonable steps in a timely manner to address, or implement recommendations of the Internal Auditors regarding the significant failings they identified in the governance processes;
- to monitor a range of issues he was made aware of and not taking adequate measures to address them.
As a result of the findings, the FCA considered that Mr Prodhan's breach was not deliberate or reckless but it created a serious and ongoing risk of financial crime being facilitated and resulted in the systemic failure of the AML systems and controls. The FCA therefore, decided that this was a level 4 breach (second highest seriousness) and imposed a total financial penalty of £76,400 on Mr Prodhan for breach of Statement of Principle 6 and being knowingly concerned in SBUK's breach of Principle 3.
For some time, the FCA has been repeating the message that the Board bears ultimate responsibility for managing AML risks effectively in firms and has been looking to take enforcement action against senior management in "the business" rather than the usual target of MLROs and compliance professionals. The FCA will therefore be hoping that the Upper Tribunal upholds this decision.
Mr Prodhan, was appointed to be the CEO of SBUK after a lengthy career in its parent bank in Bangladesh. In other cases, the FCA has expressed concern about the practice of some overseas banks in relying on secondment of overseas staff to run UK banks or branches. In this case, the FCA takes the opportunity to point out that "inexperience in the UK regulatory environment is not an excuse for … failure to exercise due skill, care and diligence in carrying out … duties."
The FCA also makes clear that senior management cannot avoid responsibility for failings under their watch by delegation to other staff. In this case, the FCA reports that "Mr Prodhan's management style was one of delegation" and that "Although he was entitled to delegate the day-to-day operational management of SBUK's AML systems and controls, he remained responsible for ensuring that these systems and controls were properly established and maintained".
Referrals of AML cases to the tribunal are rare, although with an increasing FCA focus on both AML cases and individuals, they are likely to increase. Because the case is being disputed, the decision notice helpfully contains a summary of the points of dispute between Mr Prodhan and the FCA. The key point of dispute will be the extent to which managers are entitled to rely upon those to whom they delegate and the tribunal will have to revisit many of the issues explored in the leading case of Pottage v FCA. Other areas of dispute will be the extent to which the FCA is entitled to rely on the evidence of other bank officers and employees (who may have their own personal agenda) and a claim by Mr Prodhan that the action by the FCA is time-barred because the FCA had knowledge of the misconduct over three years before it issued its warning notice (the limitation period which existed at the relevant time). As is usual, Mr Prodhan will also challenge the seriousness of the breach and hence level of penalty. Those with responsibility for AML controls in firms should take a keen interest in the ultimate outcome at Tribunal.