AIB’s failure to comply with 2010 legislation is striking

A fine of just under €2.3 million can – financially – be shrugged off by an organisation the size of AIB, though there will be some embarrassment for the bank having been caught by the Central Bank breaching legislation designed to combat money laundering and terrorist financing.

The fine relates to the period 2010 to 2014 and the breaches appear to have mainly related to EBS, the former building society taken on by the bank in 2011.

There is no evidence that accounts were actually used for money laundering or to fund terrorist activity. The matter, however, was serious, with six separate breaches of the 2010 criminal justice legislation identified.

Perhaps most significantly, the bank did not report suspicious activity to the Garda and Revenue Commissioners on the required timescale. Its unit responsible for reporting these issues took more than 18 months to fully address the backlog which at one point stood at over 4,200 alerts outstanding for 30-plus days.

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Checks not carried out

And there was more. AIB also did not properly assess 573,000 of it its pre-1995 customers. The first money-laundering rules came into place in 1995, and financial institutions are obliged to go back and undertake the required “customer due diligence” on pre-1995 accounts.

In addition, the required checks were not carried out when the bank was financing trade deals or dealing with what are called “politically exposed persons”, a term used in financial regulation to identify people in public positions who might engage in bribery or corruption.

Ulster Bank – fined €3.3 million last year for eight breaches – and a number of small credit unions have previously been fined. The affair will not have any impact on the bank's IPO, due shortly. And customers were not affected.

But AIB’s failure to comply in so many areas with the 2010 legislation is striking – and there have been more than three years of no doubt fraught talks between the bank and the regulator since this was discovered.

Of course much more serious fines are one the way from the Central Bank – for AIB and the other banks – for the tracker mortgage scandal, along with the need to reimburse customers.

The Central Bank has collected €56.775 million in fines since it got powers to do so in 2006. An awful lot more will be levied in the next year or two.