Last week, we witnessed a historic judicial hearing - albeit, held in private - in which a European royal, a member of the Spanish Monarchy, testified as a suspect in a criminal case in relation to a corruption scandal involving her husband Iñaki Urdangarin, namely alleged tax fraud and the laundering of embezzled money. The hearing was called by Judge Jose Castro who has continued to investigate the matter despite a decision taken by Spanish prosecutors not to pursue the case.
Urdangarin is suspected, along with his former business partner, of siphoning off over €6 million in public funds through the Noos Foundation. The Foundation is a charitable organisation set up to put on sports business conferences in Spain and Urdangarin is suspected of overcharging for services and charging for services never provided. It is also alleged that some of the funds in question were laundered through a shell company owned by Urdangarin and Princess Cristina and that embezzled money was being used to fund the royal couple's lavish lifestyle.
Under anti-money laundering legislation, designated persons are obliged to have controls in place to allow them to identify whether customers or beneficial owners of customers are Politically Exposed Persons (“PEPs”) within the meaning of the legislation. Immediate family members and close associates of PEPs are also considered to be PEPs for the purposes of the legislation. If a customer is identified as a PEP, the designated person must carry out enhanced customer due diligence on them both prior to the establishment of a business relationship with the customer, and on an ongoing basis thereafter. This is to ensure that the customer’s activities do not involve money laundering.
In October 2013, AXA MPS Financial Ltd was fined €50,000 by the Central Bank of Ireland for breaches of anti-money laundering legislation. These breaches included failures to have appropriate measures in place to determine whether customers or beneficial owners of customers were PEPs or were connected with PEPs before a business relationship was established with the customer.
The case involving Princess Cristina serves as a reminder to firms of why stricter measures are applied to those of PEP status. It is alleged that Urdangarin gained powerful connections as husband of a member of the Spanish Monarchy and used that position to win lucrative no-bid public contracts. Cristina herself The Central Bank in Ireland does not require a finding of involvement in money laundering to impose a penalty on a firm. Lack of robust policies and procedures for compliance with the legislation will suffice.