By Nicole D. Prysby, J.D.
Federal and state authorities announced criminal charges and a deferred prosecution agreement against the Industrial Bank of Korea over AML compliance failures at the bank’s New York branch.
On April 20, 2020, federal and New York state authorities announced criminal charges and a settlement and deferred prosecution agreement with the Industrial Bank of Korea (IBK). IBK has one branch in the U.S., in New York (IBKNY). The charges alleged that IBK failed to establish an adequate anti-money laundering (AML) program at IBKNY, which allowed the processing of more than $1 billion in transactions in violation of the International Emergency Economic Powers Act. IBKNY’s inadequate AML program allowed the unlawful transfer of U.S. Dollars to Iranian-controlled entities. Under the terms of the settlement, IBK will pay $86 million—$51 million to federal authorities and $35 million to New York State.
The U.S. Attorney for the Southern District of New York, along with the Federal Bureau of Investigation, announced that IBK was charged with violating the BSA by failing to establish and maintain an adequate AML program at the bank’s New York branch. The failure permitted the processing of more than $1 billion in transactions in violation of the International Emergency Economic Powers Act. Under the agreement, IBK will pay penalties totaling $86 million and implement remedial measures to ensure compliance with the BSA. However, the U.S. will defer prosecution for two years and seek dismissal of the charges if IBK complies with the terms of the agreement. The federal penalty will be collected through IBK’s forfeiture of $51 million. Of that amount, one half will be transferred to the U.S. Victims of State Sponsored Terrorism Fund, pursuant to the Justice for U.S. Victims of State Sponsored Terrorism Act.
According to the Deferred Prosecution Agreement and exhibits, IBK failed to maintain an adequate AML program from about 2011 through 2014. IBKNY had only one full-time compliance employee and he was not provided with any qualified or trained assistance, despite repeated and ongoing requests for additional staffing. Nor was he provided with the tools, including an automated transaction screening program, necessary for him under the circumstances to adequately fulfill the bank’s compliance function. Due to the lack of resources, IBKNY fell months behind in reviewing transactions as required by the BSA and failed to report illegal transactions in a timely manner. IBKNY also failed to implement any automated reporting or risk-based screening of transactions, charged the government. IBKNY’s inadequate AML program allowed Kenneth Zong, an American citizen, and various primarily Iranian co-conspirators to exploit bank accounts that had been established at IBK and at another bank to permit certain forms of trade between Korea based entities and Iran, to unlawfully transfer U.S. Dollars to Iranian-controlled entities. IBKNY only reviewed and identified Zong’s transactions as unlawful more than five months after they began to be processed through IBK, after IBK processed more than $1 billion of such transactions.
State charges. New York Attorney General Letitia James announced the charges against IBK and explained that since 2014, the New York Attorney General Crime Proceeds Strike Force has been conducting an investigation alongside the U.S. Attorney into various violations of New York state law by IBK, including money laundering and bank fraud related to prohibited transactions with Iran.
New York Department of Financial Services (DFS) Superintendent Linda A. Lacewell issued a press release about the charges and noted that New York has entered into a consent decree with IBK, under which the bank will pay $35 million in fines to New York State for violations of New York banking laws. Lacewell provided details about the DFS investigation into IBK, which found AML compliance problems from 2010 to 2019. In the consent order signed between DFS and IBK, DFS notes that IBK failed to establish a compliant transaction monitoring program over multiple examination cycles. However, due to the bank’s cooperation and commitment to remediate the deficiencies, DFS believes it is appropriate to enter into the consent order.
Companies: Industrial Bank of Korea
MainStory: TopStory BankSecrecyAct CrimesOffenses EnforcementActions NewYorkNews StateBankingLaws
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