The Royal Bank of Scotland (RBS) has been fined �750,000 ($1.2m) for breaching money laundering rules.

It is the first time the City watchdog, the Financial Services Authority (FSA) has fined a company under new money laundering powers it acquired last year.

There was no evidence that any money laundering had actually taken place Howard Moody RBS

Speculation has been growing for some weeks among both public and private sector investigators that the FSA would shortly fine a UK institution for breaching controls.

Some money laundering experts have argued that the UK's controls are strong in principle but weaker in practice, pointing to cases such as that involving the billions banked in London by late Nigerian dictator Sani Abacha.

Experts had been expecting the FSA to make an example to prove its powers were not going to waste.

Chancellor Gordon Brown told the Treasury Select Committee: "I think we should welcome the prompt action taken by the Financial Services Authority.

"The fine demonstrates... that the FSA takes compliance very seriously... [It] shows both that the regulations are working and the FSA's new powers are the right powers to deal with these issues."

Mistaking identity?

The investigation by the watchdog found that RBS had weaknesses in anti-money laundering controls across its retail network.

The FSA said RBS had failed either to obtain sufficient documentation to adequately establish the identity of customers, or to retain the documentation.

It said there was insufficient evidence to show that the clients were who they had claimed to be.

And in some cases RBS was unable to supply copies or details of documents such as a valid passport or a driving licence that it had used to establish identity.

Laying themselves open

The FSA's managing director, Carol Sergeant, said the fine demonstrated that the FSA took anti-money laundering compliance very seriously.

"The steps RBS took to satisfy itself that their clients really were who they claimed to be were inadequate.

"We have made clear that we expect all financial firms to have strong and effective anti-money laundering procedures in place."

She said that firms that failed to implement and follow their procedures laid themselves open to the increased risks of being used for money laundering.

In the RBS case, though, there was no evidence that money laundering had actually taken place.

In fact the bank discovered that its procedures were not robust enough in December and, the FSA said, had made some attempt to identify the customers.

'No evidence'

RBS was at pains to stress that it had found the problem itself and corrected it.

Howard Moody, group director of communications, told BBC News Online that all the accounts in question had been checked.

"There was no evidence that any money laundering had actually taken place," he said, adding that the bank's systems to counter money laundering were now "leading edge".

And he denied that the problem was anything more than a temporary failure.