* FCA critical of inadequate measures taken by banks
* Report on money-laundering at asset managers due soon
* Tough scrutiny of "pension liberation" schemes promised
(Adds Wheatley quotes, asset management next target, pensions)
By Huw Jones
LONDON, July 1 (Reuters) - A leading financial watchdog has
warned British banks that they are not doing enough to protect
themselves from being used for criminal activities and could be
fined if they fail to raise their game.
Some banks may face punishment for failure to spot abuses in
their trade finance business, such as money laundering,
sanctions busting or funding of terrorists, Britain's Financial
Conduct Authority (FCA) said on Monday.
FCA Chief Executive Martin Wheatley said that organised
crime nets between 20 and 30 billion pounds (about $30 billion
to $45 billion) a year in Britain from illegal drugs, with 10
billion pounds "filtered, cleaned and rebottled" through banks,
accountants and lawyers.
"It's simply not acceptable for firms to turn a blind eye to
where the money comes from, its journey from A to B," he told an
FCA conference on financial crime.
A review by the FCA of banks' trade finance found that about
half of the 17 banks examined - including four big British banks
- had no clear policy or procedures for identifying money
"Our main conclusion is that the majority of banks in our
sample, including a number of major UK banks, are not taking
adequate measures to mitigate the risk of money laundering and
terrorist financing in their trade finance business," it said.
Banks' internal audits failed to consider financial crime
controls. "We are also considering where further regulatory
action may be required for certain banks in our review."
In trade finance, banks act as an intermediary for companies
importing or exporting goods; an important role in providing
money for international trade. It includes letters of credit
that guarantee payment will be made for the goods, and the
provision of funding when pre-payment is required.
'WORK TO DO'
Tracey McDermott, the regulator's head of enforcement, said
the review found that in some cases the only thing that was
being shipped was "fresh air".
"Some banks have a lot of work to do to raise their game to
the best of their peers," McDermott told the FCA conference.
There were, however, some impressive examples of best
practice at some banks. For example, one told the regulator that
if a foreign army was importing shower gel, the transaction had
to be signed off by a managing director to check exactly who the
end user was.
But at another bank, scrap metal - "a high-risk commodity in
money laundering terms" - was being sold by a company in the
British Virgin Islands to a company in the United Arab Emirates,
but the documents showed no details of the party taking
delivery, the regulator said.
A report on controls to prevent money laundering through
asset managers will be published this summer and McDermott
hinted that problems are being found in that sector too.
"It is a useful reminder ... that criminals are not fussy
about the nature of the institution they use to launder their
money," McDermott said.
A "deep dive" into Britain's biggest banks to check their
general controls to prevent money laundering is continuing and
its scope might be widened in future, she added.
"We are still too often left disappointed by what we see,"
McDermott said. The regulator will publish data on what its
money laundering work uncovers.
The FCA is also examining some so-called "pension
liberation" schemes that persuade consumers to dip into their
pension pots early, only to face hefty tax and other fees.
($1 = 0.6593 British pounds)
(Editing by Jane Merriman and David Goodman)