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CSSF Fines Intercorp €27,000 for Serious AML/KYC Violations

In recent news, Luxembourg’s financial regulator, the Commission de Surveillance du Secteur Financier (CSSF), has levied a €27,000 fine on Intercorp for significant failures in complying with Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) obligations. This sanction, issued on November 28, 2024, followed an on-site inspection that uncovered critical shortcomings in the company’s AML/KYC (Know Your Customer) procedures. This fine serves as a clear reminder of the importance of maintaining robust AML and KYC systems and underscores the regulator’s commitment to ensuring the integrity of financial services in Luxembourg.

The inspection conducted by CSSF between June 20, 2023, and November 29, 2023, centered on Intercorp’s domiciliation and company management services. This type of inspection plays a pivotal role in assessing the adherence of financial institutions to the strict requirements set out under the EU’s anti-money laundering directives. During the investigation, several key failures were identified that ultimately led to the imposition of the fine.

The CSSF’s press statement highlighted that Intercorp had significant deficiencies in its customer due diligence (CDD) processes, including insufficient information on the source of client funds. The regulator pointed out that in multiple instances, Intercorp did not gather or corroborate the necessary documentation required to verify the origin of funds. This lapse in due diligence poses a serious risk to the financial system, as it makes it easier for illicit funds to enter the legitimate economy, thus facilitating money laundering activities.

One specific case detailed by CSSF involved a client who was classified as low risk but showed discrepancies between their stated personal assets and professional income. Despite these inconsistencies, Intercorp failed to take the necessary steps to investigate further or obtain the supporting documentation required to clarify the situation. This failure to adequately scrutinize high-risk profiles is a key concern in ensuring that financial institutions do not unknowingly facilitate money laundering or other illicit activities.

AML Failures in High-Risk Business Relationships

Another significant issue identified was related to Intercorp’s handling of high-risk business relationships. The CSSF investigation uncovered a situation in which an offshore entity controlled by an individual residing in a high-risk country acquired shares worth several million euros. Despite recognizing the high-risk nature of this business relationship, Intercorp did not obtain the necessary supporting evidence to verify the source of funds for the acquisition. This failure to perform adequate checks in such high-risk scenarios raises serious questions about the strength of Intercorp’s risk assessment procedures.

Furthermore, the investigation found that Intercorp had not taken appropriate action when dealing with a transfer of ownership between beneficial owners in a high-risk jurisdiction. The absence of documentation related to the origin of funds in this case further highlighted deficiencies in Intercorp’s overall compliance framework. These failures were not isolated incidents but rather a consistent pattern of weak controls and inadequate due diligence, which ultimately led to the penalty imposed by the CSSF.

Delays in Reporting Suspicious Transactions

One of the most critical findings from the CSSF’s investigation was the delay in Intercorp’s reporting of suspicious transactions to the Financial Intelligence Unit (FIU). Timely and accurate reporting of suspicious activities is a cornerstone of effective AML and CFT efforts. In one particular case, the beneficial owner of a client was linked to allegations of corruption in two separate legal proceedings. Despite the evidence that funds associated with these proceedings had passed through the client’s accounts, Intercorp failed to investigate or report the suspicious activities until after the CSSF’s intervention.

In another instance, Intercorp’s name screening tool flagged a trust settlor convicted of aggravated tax fraud. However, Intercorp did not take immediate action, nor did they conduct a further investigation into the matter. These delays in reporting raise significant concerns about the company’s commitment to maintaining a transparent and compliant environment. Financial institutions are expected to act swiftly when faced with potential red flags, and Intercorp’s failure to do so highlights serious gaps in its compliance processes.

Additional Breaches and Reporting Failures

The CSSF also discovered additional breaches related to terminated business relationships. In one case, Intercorp did not file a suspicious transaction report concerning a former client, despite being aware of ongoing legal proceedings involving the client’s beneficial owner. Furthermore, a declaration regarding a terminated business relationship with a business provider was submitted over eight months late. The report was also incomplete, as it failed to list key clients introduced by the provider for whom essential information was missing.

These ongoing compliance failures demonstrate that Intercorp’s systems for tracking and managing business relationships—especially in cases of termination—were insufficient. The timely and accurate reporting of all relevant information is crucial to maintaining a robust AML framework and preventing financial institutions from becoming entangled in money laundering or terrorism financing activities.

The Consequences of AML/CFT Non-Compliance

The penalty imposed on Intercorp serves as a stark reminder of the potential consequences for financial institutions that fail to meet AML and CFT obligations. In addition to the financial penalty, such breaches can severely damage a company’s reputation, erode customer trust, and lead to increased regulatory scrutiny. In the current global landscape, where financial institutions are under constant surveillance, it is essential for businesses to invest in strong AML and KYC procedures and to ensure ongoing compliance with evolving regulations.

For Intercorp, the €27,000 fine may appear relatively modest in comparison to the size of its operations, but the long-term reputational damage and the risk of further scrutiny should not be underestimated. This case serves as an important reminder that the cost of non-compliance far outweighs the cost of implementing effective compliance controls.

Lessons Learned and Corrective Actions Taken

Following the CSSF’s findings, Intercorp has acknowledged its failures and implemented corrective measures to address the deficiencies identified during the inspection. This includes strengthening its due diligence procedures, improving risk assessments, and ensuring that all suspicious transactions are reported in a timely and complete manner. The company has also made efforts to ensure that all client information is thoroughly verified, especially in high-risk scenarios, and that any discrepancies are immediately investigated.

While corrective actions have been taken, this case underscores the importance of a proactive approach to compliance. Financial institutions must continuously assess and improve their AML and KYC systems to stay ahead of evolving threats and regulatory expectations. By doing so, they can better protect themselves from financial penalties and safeguard the integrity of the financial system as a whole.

Conclusion: Upholding the Standards of AML and KYC Compliance

In conclusion, the €27,000 fine imposed on Intercorp by the CSSF highlights the critical importance of robust AML and KYC procedures in today’s financial environment. The breach of regulatory obligations can lead to significant reputational and financial consequences, as demonstrated by this case. Financial institutions must ensure that their compliance frameworks are comprehensive, well-maintained, and capable of detecting and mitigating risks in real-time.

By adhering to the best practices outlined by regulators and taking corrective action when necessary, companies can avoid costly penalties and contribute to the global fight against money laundering and terrorism financing. The Intercorp case serves as a stark reminder that even small lapses in compliance can lead to significant consequences, making it essential for all financial institutions to remain vigilant in their AML and KYC efforts.