Chinese Bank Fined $215m by NY Regulator for Money Laundering Violations

Agricultural Bank of China has settled with NY watchdog DFS for violating anti-money laundering laws.

Agricultural Bank of China has agreed to pay a $215 million penalty to settle allegations by New York’s banking regulator that it violated anti-money-laundering laws, according to a statement issued by the Department of Financial Services (DFS) today.

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Miscellaneous Violations

According to the DFS, bank officials engaged in intentional wrongdoings, including disguising suspicious transactions at the New York branch which could have hidden laundering of illicit funds or violations of US sanctions laws.

The bank also silenced the Chief Compliance Officer (CCO) at the New York branch, who tried to raise serious concerns to the management and conduct internal investigations regarding suspicious activity, leading the CCO to ultimately resign.

DFS Superintendent Maria T. Vullo commented: “DFS will take swift and appropriate action when our investigation finds egregious conduct and intentional circumvention of a regulated bank’s compliance program”.

The failure of the bank to have a robust and operationally functioning compliance program warranted the serious sanctions and remedial action taken by the DFS, which has now installed an independent monitor to review specific transactions over a prior 18-month period.

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The DFS also found that the New York branch has conducted US dollar clearing in rapidly increasing volumes since 2013 through foreign correspondent accounts, even after it warned the bank not to increase its dollar clearing transactions until it significantly improved its compliance function.

The bank ignored DFS’s warning and dollar clearing transactions at the New York branch skyrocketed in 2014 and 2015, creating an untenable risk at a time when the bank was not able to satisfy even basic compliance requirements.

The bank was also found to employ non-transparent and evasive transaction methods, including sending coded messages through the Society of Worldwide Interbank Financial Telecommunication (SWIFT) system that masked the true parties to a transaction and avoided screening by DFS.

Compliance personnel at the New York Branch also discovered alarming transaction patterns, including unusually large round dollar transfers between Chinese and Russian companies, potentially suspicious dollar denominated payments from trading companies located in the Middle East and certain invoices involving China and Russia which appeared to be counterfeit or falsified.

Strict Regulatory Controls

Chinese banks have been notoriously slower to adopt the stringent internal controls adopted by Western banks in recent years, due to strict enforcement by US authorities.

Today’s action highlights the importance of DFS’s new risk-based anti-terrorism and anti-money laundering regulation that requires regulated institutions to maintain programs to monitor and filter transactions for potential BSA/AML violations and prevent transactions with sanctioned entities.

The regulation, which takes effect on 1 January, 2017, requires regulated institutions to submit an annual board resolution or senior officer compliance finding confirming the steps taken to ascertain compliance with the regulation.

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