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China bank muzzles New York compliance chief, pays $215 million penalty

The Agricultural Bank of China was penalized $215 million Friday after it “silenced and severely curtailed the independence” of its New York branch’s chief compliance officer who tried to expose and stop suspicious transactions at the bank.

The CCO eventually resigned. A few months later, most of the compliance staff also resigned, the New York State Department of Financial Services (DFS) said Friday.

“The DFS investigation discovered intentional wrongdoing,” the regulator said.

New York regulators told the bank in 2013 not to increase U.S. dollar clearing activity through foreign accounts until it strengthened its compliance program.

But in 2014 and 2015, the bank ramped up U.S. dollar clearing volumes. At the time, the bank couldn’t satisfy even basic compliance requirements, the DFS said Friday.

The chief compliance officer discovered the bank was using coded messages through the Society of Worldwide Interbank Financial Telecommunication (SWIFT) system to hide the true parties to transactions.

“When the CCO brought the coded SWIFT messages to the attention of bank management in the Fall of 2014, the CCO was told to refrain from communicating with regulators and was effectively silenced,” the New York regulator said.

The compliance chief resigned in May 2015.

“The CCO’s departure was followed by the resignation of much of the remaining compliance staff in August 2015,” the DFS said.

While still at the bank, compliance personnel had found unusually large round dollar transfers between Chinese and Russian companies and from Yemen to companies in China.

There were potentially suspicious dollar-denominated payments from trading companies in the Middle East.

The compliance group found dollar transactions remitted by a Turkish Bank customer for an Afghan bank client “known by the U.S. Treasury Department for its associations with a Hawala network having associations with narcotics traffickers and illicit cash flows.”

Some invoices involving China and Russia appeared to be counterfeit or falsified.

Other documents suggested U.S. dollar trades made for the benefit of a sanctioned Iranian party. That information was omitted from the SWIFT wire messaging.

Financial Services Superintendent Maria T. Vullo said the bank’s conduct “created a substantial risk that terrorist groups, parties from sanctioned nations, and other criminals could have used the bank to support their illicit activities.”

Friday’s enforcement action required the bank to install an independent monitor for two years and fix its compliance program.

The monitor will be selected by the DFS and will report directly to it.

The DFS said it will direct the monitor to do an 18-month look-back that could lead to additional enforcement actions against the bank.

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The November 4, 2016 New York State Department of Financial Services order against Agricultural Bank of China and its New York branch is here (pdf).

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Richard L. Cassin is the publisher and editor of the FCPA Blog.

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