New York DFS Issues $180M BSA/AML Penalty

New York’s banking regulator cracked down on enforcement of the state’s anti-money laundering (AML) law, issuing a $180 million penalty against Mega International Commercial Bank of Taiwan (Mega Bank) for past violations and requiring an independent monitor going forward.

What happened

What DFS examiners found in the course of their September 2014 examination was “extremely troubling,” the regulator said, with “numerous deficiencies” in Mega Bank’s New York branch’s compliance with state AML law.

The international financial institution, which has approximately $103 billion in assets—$9 million of which are at its New York branch—had an officer assigned to Bank Secrecy Act (BSA)/AML issues. But the officer for the New York branch was based at the bank’s Taiwan headquarters and neither he nor the branch’s chief compliance officer had familiarity with U.S. regulatory requirements, DFS said. Adding to the problem, the chief compliance officer had conflicted interests, with key business and operational responsibilities along with her compliance role.

Other members of the compliance staff, both at the New York branch and the head office, failed to periodically review surveillance monitoring filter criteria that were designed to detect suspicious transactions, according to DFS, and documents relied upon in transaction monitoring were not translated into English from Chinese, limiting their effective evaluation by regulators.

The BSA/AML compliance efforts at the New York branch were seriously lacking, the regulator added. The procedures in place provided “virtually no guidance” about the reporting of continuing suspicious activities, with some of the compliance policies inconsistent, such as transaction monitoring and customer on-boarding, as well as a failure to determine whether foreign affiliates had adequate AML controls in place.

DFS characterized the bank’s head office as “indifferent” toward risks with high-risk money laundering jurisdictions such as Panama. The examination revealed “a number” of suspicious transactions between Mega Bank’s New York and Panama branches and determined that a “substantial number” of customers were formed with the assistance of a Panamanian law firm DFS said is “at the center of the formation of shell company activity, possibly designed to skirt banking and tax laws worldwide, including U.S. laws designed to fight money laundering.”

Pursuant to the consent order, Mega Bank will pay a $180 million penalty and must install an independent consultant to implement changes to its policies and procedures to remedy the compliance deficiencies at the New York branch.

In addition, an independent monitor—who will report directly to DFS—will be engaged for a two-year period and tasked with conducting a comprehensive review of the effectiveness of the branch’s compliance program as well as conducting a Transaction and Office of Foreign Assets Control Sanctions Review to review activity from 2012 to 2014 for possible suspicious activity.

To read the consent order in In the Matter of Mega International Commercial Bank Co., click here.

Why it matters

“DFS will not tolerate the flagrant disregard of anti-money laundering laws and will take decisive and tough action against any institution that fails to have compliance programs in place to prevent illicit transactions,” DFS Superintendent Maria T. Vullo said in a statement. The action reiterates the regulator’s commitment to BSA/AML enforcement, particularly with a new regulation set to take effect January 1, 2017, that requires regulated institutions to submit an annual board resolution or senior officer statement attesting to compliance.



pursuant to New York DR 2-101(f)

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