Public statement concerning the imposition of a civil penalty under The Anti-Money Laundering & Countering The Financing Of Terrorism (Civil Penalties) Regulations 2019 in respect of Döhle Yachts Management Services Limited (‘DYMSL’)

Published on: 20 January 2023

1. Action

1.1 The Isle of Man Financial Services Authority (the “Authority”) makes this public statement in accordance with powers conferred upon it under section 27 of the Designated Businesses (Registration and Oversight) Act 2015 (the “Act”) and under regulation 5(7) of the Anti-Money Laundering and Countering the Financing of Terrorism (Civil Penalties) Regulations 2019 (the “Regulations”).

1.2 The making of such public statement supports the Authority’s regulatory objectives of, among other things, securing an appropriate degree of protection for customers of persons carrying on a regulated activity, reducing financial crime and maintaining confidence in the Isle of Man’s financial services industry.

1.3 Following an inspection of DYMSL by the Authority under section 14 of the Act (the “Inspection”), which identified a number of contraventions of the Anti-Money Laundering and Countering the Financing of Terrorism Code 2019 (the “Code”), the Authority has deemed it appropriate, necessary and proportionate, in all the circumstances, that DYMSL be required to pay a civil penalty imposed under the Regulations.

1.4 The Regulations allow for penalties to be imposed at two levels depending on the perceived seriousness of the contraventions identified. Penalties imposed equate to a percentage of the registered persons income from that person’s business in the regulated sector. In this instance the Authority has deemed that the contraventions identified, in all of the circumstances, merit that a penalty be imposed in the higher, Level 2, penalty bracket.

1.5 The civil penalty imposed on DYSML is the sum of £5,896 which is discounted by 30% to £4,127 (the “Civil Penalty”).

1.6 The level of the Civil Penalty reflects the fact that DYMSL co-operated with the Authority and agreed settlement at an early stage, through the employment of the Authority’s Enforcement Decision-Making Process (“EDMP”).

2. Background

2.1 DYMSL has been registered with the Authority as an external accountant since 23 October 2017.

2.2 DYSML’s 2020 annual return, submitted to the Authority under the Act, indicated, in respect of their designated business activities, a high proportion of foreign politically exposed persons (“PEPs”). In light of the foregoing, DYMSL was selected to be part of the Foreign PEP (“FPEP”) thematic project undertaken by the AML/CFT Division of the Authority.

2.3 The Inspection was conducted by the Authority in April 2022 and this identified a significant number of contraventions of the Code by DYMSL across its FPEP client base (the “Contraventions”).

2.4 As a consequence of the Contraventions, the Authority issued a direction to DYMSL mandating that it suspend all existing and established business relationships and refrain from establishing any new business relationships (as such term is defined within the Code) until the Authority could be satisfied that DYMSL could demonstrate its compliance with the Code.

2.5 Following the Inspection, DYMSL had decided to cease providing the services of an external accountant and has subsequently requested that the Authority de-register DYMSL under the Act.

2.6 DYMSL has engaged positively with the Authority throughout this matter in a timely and constructive manner.

3. Key Findings from inspection report

Contraventions of the Code identified by the Inspection included:
the firm’s business risk assessment was not up-to-date and did not include an overall assessment of the risk of money laundering and terrorist financing (“ML/FT”) of DYSML’s business or its customers (paragraph 5 of the Code);
the customer risk assessments of DYMSL did not contain the prescribed level of detail nor were they updated on a regular basis (paragraph 6 of the Code);
Code-compliant customer due diligence and enhanced due diligence was not on file in all cases (paragraphs 8, 12 and 15 of the Code);
the foreign politically exposed persons customer files of DYMSL did not adequately demonstrate or identify customers source of funds and source of wealth (paragraphs 8, 14 and 15 of the Code);
the ongoing monitoring processes of DYMSL were not effective (paragraphs 14 and 15 of the Code);
monitoring and testing of DYMSL’s compliance with the Code was not undertaken (paragraph 30 of the Code); and
DYMSL failed to establish procedures and controls which were suitable or appropriate to take into account the ML/FT risks posed to DYMSL, nor the specific processes relevant to the same (paragraph 4 of the Code).

4. Key Learning Points for Industry

4.1 Compliance with the Code is a legal requirement; the Authority is committed to taking appropriate and proportionate action to address contraventions of the Code.

4.2 The higher ML/FT risks posed by business relationships involving foreign PEPs, who are considered to be more exposed to the risk of bribery and corruption, demonstrates the increased importance of on-boarding processes including appropriate sign off, sufficiently establishing ‘Source of Funds’/’Source of Wealth’, conducting effective ’Enhanced Customer Due Diligence’ and enhanced ongoing monitoring. The absence, or ineffectiveness, of these controls will also impact on a registered person’s ability to conduct effective and appropriate monitoring, including scrutiny of transactions, which in turn may result in unusual or suspicious activity not being identified in the appropriate circumstances. Without the appropriate effective procedures and controls in place, or not being operated adequately, a registered person will be unable to manage and mitigate the identified risks of ML/FT and conduct the business utilising a risk based approach as required by the Code.

4.3 There are a number of powers available to the Authority under the Act, the Code and the Regulations to address identified instances of non-compliance with the Code. The Authority’s powers include, but are not limited to, the issuance of a direction and/or public statement as well as the imposition of civil penalties or the commencement of criminal proceedings under the relevant legislation. The particular circumstances and the nature of an entity’s non-compliance with the Code will determine the action(s) taken by the Authority.

4.4 Active engagement and cooperation with the Authority provides the best possible opportunity to resolve matters in a timely and constructive manner and, where appropriate, to minimise the likelihood of the Authority taking further action in relation to instances of non-compliance with the Code.

4.5 The Authority will publish details of ongoing and concluded matters when it is in the public interest to do so.