A case study in anti-money laundering

Case Study: CPG is an international, regulated financial services firm, whose head office is based in London (UK). Lisa is CPG’s newly appointed MLRO/Nominated Officer and has been tasked by the Board of Directors with reviewing AML/CTF compliance within the firm. As part of her review, Lisa conducts interviews, reviews files, meets the Board of Directors and analyses reports from the regulator. Her primary findings include two particular issues of concern. 1) It seems that there are a number of Politically Exposed Persons (PEPs) whose files have been classified as low or medium risk, but examination of the files suggests they ought to be high risk. One in particular is Kostya Babaev (KB), a national from a high-risk jurisdiction who is based in London. KB’s wealth originates from the oil industry, but he has many different business interests, including an Art and Antiquities business and ownership of a professional football club. He now lives in London but maintains close links with the high-risk jurisdiction, where his brother is a member of the government. There have been many rumours that KB’s businesses have strong links with the organised crime but there appears to be no factual evidence to substantiate the rumours. KB is regarded as an important client by CPG as he has bought several large properties over the last five years in different capital cities and is currently interested in buying a significant number of apartments in the south of England. The files Lisa reviewed stated, as the reason for the purchase of the apartments, that KB anticipates a growth in ‘holidaying at home’ over the next few years and these would be an excellent investment. There was a further observation in the files that in meetings with KB, he was reluctant to give anything other than the bare minimum of information and when pressed he always became agitated and aggressive. There seemed to be a lack of significant due diligence information and the files suggested that CPG wished to keep him as a client at all costs. 2) In her general role reviewing AML/CFT compliance within the firm, Lisa also notes that there appear to be a very small number of internal ML suspicion reports, not commensurate with the size of the firm and number of accounts operated. a) Evaluate the risks and issues raised by the scenario. (50 marks) b) Advise Lisa as to what action she should take. (50 marks)