The move by the state’s Department of Financial Services is the first against a big bank from Asia, outside Japan, and comes two years after the DFS began to take action against some European banks for sanctions-busting and money-laundering offences.
In its consent order, agreed with the bank and released on Friday afternoon, the DFS spelt out a litany of failings at the New York branch of AgBank, the world’s sixth-biggest bank by market capitalisation. The regulator said the lapses had come even after it had warned the branch in 2014 to step up its efforts to comply with the Bank Secrecy Act (BSA), a decades-old law that requires banks in the US to help government agencies detect and prevent money-laundering.
When AgBank’s newly-hired chief compliance officer raised concerns about possible suspicious activity flowing through the branch in September 2014, branch management did little to address them, the DFS said, responding instead by curbing that officer’s authority.
After the CCO took leave in April 2015 and left in June, AgBank’s compliance department was run for six months by a temporary consultant. DFS examiners came on-site in July that year to discover an “unmanageable” backlog of nearly 700 alerts of potential suspicious transactions that had been left uninvestigated, as the bank ramped up its dollar-clearing activities. Much of the remaining compliance staff at the branch resigned by August 2015.
Transactions that should have raised flags included unusually large round-number transfers between Chinese trading companies and Russian lumber companies, and dollar transactions remitted by a Turkish bank on behalf of an Afghan client known for its links to drug traffickers.
DFS will take swift and appropriate action when our investigation finds egregious conduct and intentional circumvention of a regulated bank’s compliance programme
AgBank’s New York branch said in a statement that it was committed to maintaining a “robust and comprehensive” anti-money laundering and compliance programme, and would continue to co-operate with regulators including the DFS.
Maria Vullo, financial services superintendent, said: “DFS will take swift and appropriate action when our investigation finds egregious conduct and intentional circumvention of a regulated bank’s compliance programme.”
Since the DFS was formed in the wake of the financial crisis by the merger of the state’s banking and insurance regulators, it has wrung more than $7bn of fines from some of the world’s biggest banks. Along the way it has earned a reputation as the snarling watchdog of Wall Street, while raising some tensions with other government agencies in Washington, which have sometimes felt swept along by its regulatory zeal.
The DFS’s heaviest penalty was against BNP Paribas in June 2014, when it fined the French lender $2.2bn for sanctions violations, demanded the sacking of 13 senior executives and banned the bank for a year from handling US dollars.
The department’s focus on non-US banks is largely a reflection of the banks it licenses — all of the biggest US lenders bar Goldman Sachs are chartered by the Officer of the Comptroller of the Currency.
The DFS said AgBank employed “evasive” methods, such as sending coded messages through the SWIFT system that masked the true parties to a transaction. The bank’s former CCO estimated that about one-quarter of wire messages transiting through the branch contained such codes, and were thus impervious to screening by the branch or the regulator.
Under the consent order, AgBank has agreed to install an independent monitor for two years, to conduct a “comprehensive review” of its compliance with anti-money laundering regulations under the BSA and state laws.
Assets held in AgBank’s New York branch total about $9.5bn, the DFS said, of a global total of about $2.8tn. The branch is the bank’s only US branch. It was licensed in August 2012 as a wholesale banking branch to hold demand deposits, conduct corporate lending and deposits, and carry out trade finance and treasury activities including foreign exchange.