Membership-only credit card firm fined for money laundering breaches

FIAU sign

Tista' taqra bil- Malti.

A membership-only credit card provider has been fined over €373,000 for money laundering breaches by the financial watchdog.

Insignia Cards Limited that had recruited former economy minister Chris Cardona as an advisor, describes itself as “the most bespoke high-end lifestyle management service groups in the world. Insignia has now also established itself as a financial institution providing Card products and services to clients in Malta and other European countries.”

The Financial Intelligence Analysis Unit slapped the company with €373,670 administrative penalty on 3 December after it considered the findings by the FIAU’s Compliance Monitoring Committee. The FIAU said that it remained concerned about the degree and extent of Insignia’s lack of adherence to its anti-money laundering obligations. The major of the failures were considered as very serious by the committee.

FIAU’s compliance visits took place in 2019 prior to Cardona being recruited.

During these visits, the FIAU found that a file of a natural person was risk rated by the company as high-risk due to his politically exposed status and adverse media links pertaining to ties with the Russian mafia. The FIAU noted that Insignia was satisfied with only obtaining, through an independent source, the company’s internal source of wealth declaration form. This only corroborated the information of the customer’s estimated earnings, his estimated assets, source of wealth stated as originated from employment and details relating to the individual’s employment and as being an executive director of an entity, a co-founder of another and having had different entertainment businesses over the years.

The FIAU came to a conclusion that such source of wealth declaration did not provide sufficient peace of mind relating to the legitimate origin of the source of wealth and source of funds given the customer’s political status. It observed that the minimum that the company should have done in such a case was to request the customer to provide documentary evidence to substantiate the declared income and the source that generated the customer’s funds and wealth.

The compliance examination also identified serious shortcomings pertaining to the Insignia’s inadequate scrutiny of customer transactions throughout the course of the business relationship. Furthermore, it failed to ensure that the transactions undertaken are consistent with the subject person’s knowledge of the customer and of his business and risk profile.

The company first implemented transaction monitoring on card spending in 2017. It stated that the monitoring process that aims to review unusual transactions, was in place before that year. However during the compliance visit the committee could not ascertain the date on which the company’s ‘Transaction Matrix’ started to be implemented since it was not documented in its monitoring procedures. The committee found that the company failed to conduct transaction monitory or scrutiny that takes into account money laundering risks.

The FIAU found that the transaction monitoring procedures in place by Insignia for the period 2017 and June 2019 failed to define any rules to flag suspicious transaction activity.

Following the implementation of a partially automated transaction monitoring system, the
Company’s procedures updated post June 2019 explained the set of five (5) rules on which alerts are generated and flagged for review. While the Committee acknowledged that the rules are indeed adequate, additional rules are required, as the Company still lacked in assessing essential aspects in line with its transaction monitoring obligations. The rules employed by the Company’s transaction monitoring system generates alerts on a one-size-fits-all basis. This means that the company is not able to adequately identify behavior or transactions that diverged from the usual pattern of transactions of its customers nor is it able to ascertain that the transactions undertaken fit within the customer’s profile.

For example, in one file the company had recorded customer’s source of wealth to have accrued exclusively from his annual income of £150,000, such funds derived from the customer’s full-time employment. However, during the first months of 2019, such customer made payments amounting to approximately €1.2 million. This including approximately €208,500 to a car dealership in Monaco.

Overall, the committee positively acknowledged the actions already taken by the company and the actions planned to be taken by it in order to remediate the failures identified during the compliance review.

The committee also served the Company with a Follow-Up Directive. Through the directive, the FIAU is requesting the company to make available a detailed action plan pertaining to all the breaches identified following the compliance examination, along with any other relevant enhancements the company has implemented and plans to implement.