Asia Pacific Report newsdesk
Papua New Guinea’s biggest bank — Bank South Pacific with major branch networks across the Pacific region — is the subject of regulatory action by the country’s banking regulator BPNG over failure to comply with anti-money laundering regulations, reports the PNG Post-Courier.
The Financial Analysis and Supervision Unit (FASU) of the Central Bank yesterday took regulatory action against the BSP Financial Group Ltd for alleged non-compliance.
The action includes the issuance of a formal warning under section 100 of the Anti-Money Laundering and Counter Terrorist Financing Act 2015, an enforceable undertaking from BSP that it will remove and replace certain executive management staff and for the BSP to engage an external auditor to determine the full extent of the underlying good governance and best business practice issues that were identified during the onsite inspection by FASU.
The external auditor’s examination will cover enhanced customer due diligence practices employed by BSP on all high risk and politically exposed people who are customers of BSP.
The director of the Financial Analysis and Supervision Unit of the Central Bank, Benny Popoitai, said in a media release: “The nature of BSP’s non-compliance is serious enough for FASU to have issued an infringement notice, however, FASU has chosen to apply a formal warning instead, making this the first occasion of regulatory action undertaken by FASU against BSP.”
Among the alleged breaches detailed by FASU were BSP’s alleged failure to:
- conduct ongoing due diligence in respect of all of its business relationships in contravention of section 17(1) of the Act;
- ensure that transactions carried out on behalf of its customers are consistent with its knowledge of the customer, the customer’s commercial or personal activities and risk profile contrary to section 17(2)(b) of the Act;
- ensure that ongoing enhanced due diligence is conducted with respect to politically exposed persons in accordance with section 29(b) of the Act;
- conduct enhanced customer due diligence in accordance with the requirements of sections 27 and 28 of the Act where it had taken the view that the customer was a politically exposed person contrary to section 26(1) of the Act;
- obtain information relating to the source of the assets or the wealth of the customer when conducting enhanced due diligence contrary to section 27(b) of the Act;
- take reasonable steps to verify information relating to the source of the assets or the wealth of the customer contrary to section 28(b) of the Act; and
- take all reasonable steps to identify whether a customer or beneficial owner is a politically exposed person contrary to section 29(1) of the Act.
According to Wikipedia, BSP has 35 branches throughout Papua New Guinea and in eight other countries.
Outside PNG, the bank’s operations span Cambodia, Cook Islands, Fiji, Laos, Samoa, Solomon Islands, Tonga and Vanuatu. It also has correspondent banking relationships with Bank of America and Wells Fargo.
Commonwealth Bank of Australia (CBA) and National Australia Bank (NAB) provide correspondent banking services to BSP in Australia, providing a gateway for BSP’s clients from across the Pacific to transfer money in and out of Australia.
BSP employs more than 3000 people and services more than 650,000 business banking customers throughout the Pacific.
On site inspections
The FASU media release said the unit had conducted on site inspections on BSP in 2019 and late last year it had issued the bank with a “show cause notice” requiring it to explain why FASU should not impose enforcement action.
BSP’s response to FASU was a blanket denial without any acknowledgement of the deficiencies highlighted.
This, said Popoitai, had left FASU with no choice but to apply regulatory measures.
He also said: “FASU expects BSP to co-operate with the regulatory measures imposed.”
Penalties for breaching this Act are a fine of up to K500,000 (NZ$205,000) or imprisonment for a term not exceeding 5 years or both, or a fine of K1 million (NZ$410,000) for a body corporate, for each offence.
When contacted, BSP’s chief executive officer Robin Fleming told the Post-Courier: “At this stage BSP is unable to comment.”
However, in a later statement to the Australian Securities Exchange today, the BSP group insisted it has complied with the regulations and was considering its “legal options”.
According to the Australian Financial Review, an enforceable undertaking is being sought with the bank to “remove and replace certain executive management staff”. This is understood to include Fleming.
BSP will also be required to hire an external auditor to ensure it complies with anti-money laundering laws in the future.