BSA/AML Violations Trigger $215M Consent Order With New York's DFS

Violations of state anti-money laundering laws tripped up the Agricultural Bank of China, which recently entered into a consent order with New York's Department of Financial Services for $215 million.

What happened

The New York branch of the Agricultural Bank of China was hit with a $215 million penalty and the installation of an independent monitor due to violations of the state's anti-money laundering (AML) laws, the Department of Financial Services (DFS) announced.

During DFS examinations in 2014 and 2015, the agency uncovered "serious and persistent" compliance failures with both state AML laws as well as the federal Bank Secrecy Act (BSA) at the bank's New York branch, according to the consent order.

A subsequent investigation by the DFS discovered that the branch conducted U.S. dollar clearing "in rapidly increasing volumes" since 2013 through foreign correspondent accounts, even after the DFS warned the bank not to do so. Willfully ignoring the regulator's warning, dollar clearing transactions at the branch "skyrocketed" in 2014 and 2015, the DFS said, "creating an untenable risk" when the branch was not able to meet even basic compliance requirements.

The bank also employed "non-transparent and evasive" transaction methods, the regulator alleged, such as sending coded messages through the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system that masked the true parties to a transaction and avoided screening by the DFS.

Compliance personnel at the branch found "alarming" transactions patterns, such as unusually large round-dollar transfers between Chinese and Russian companies and unusually large round-dollar payments from Yemen to companies in China, as well as suspicious dollar-denominated payments from trading companies located in the Middle East and transactions remitted by a Turkish Bank customer for an Afghan Bank client known by the U.S. Treasury Department for associations with illicit cash flows and narcotics traffickers.

The branch's chief compliance officer (CCO) brought the problems to the attention of bank management in late 2014 but was "effectively silenced," the DFS said, and eventually resigned after being instructed not to communicate with regulators.

The DFS's investigation found other compliance issues at the branch, including the inability to retain a qualified, permanent CCO; no point of contact for the interim BSA officer with the head office of the bank; deficiencies in documentation; and insufficient resources for the CCO, who also held the role of BSA officer.

Pursuant to the consent order, the Agricultural Bank of China will pay the DFS a $215 million penalty. In addition, the bank will retain and install an independent monitor (selected by and reporting directly to the regulator) who will conduct a comprehensive review of the New York branch's BSA/AML compliance program, both federal and state laws and regulations. An 18-month look-back at the branch's U.S. dollar clearing transaction activity will also be conducted by the monitor to determine whether any transactions ran afoul of laws or regulations. Findings from this review could subject the bank to additional enforcement actions, the DFS noted.

To read the consent order in In the Matter of Agricultural Bank of China, Ltd., click here.

Why it matters

The action provides an important reminder not just about general BSA/AML compliance obligations, but also the DFS's new regulation focused on AML and antiterrorism. Set to take effect January 1, 2017, the new regulation requires covered entities to submit an annual board resolution or senior officer compliance finding that confirms the steps taken to ascertain compliance with the requirement to maintain programs to monitor and filter transactions for potential BSA/AML violations and prevent transactions with sanctioned entities. "DFS will take swift and appropriate action when our investigation finds egregious conduct and intentional circumvention of a regulated bank's compliance program," DFS Superintendent Maria T. Vullo warned in a statement. "Central to bank management's responsibilities is creating, fostering, and maintaining a healthy culture of compliance, which is foundational to effective risk management. The failure of a strong compliance program at the New York Branch of the Agricultural Bank of China created a substantial risk that terrorist groups, parties from sanctioned nations, and other criminals could have used the Bank to support their illicit activities."



pursuant to New York DR 2-101(f)

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