(Bloomberg) -- China’s third-largest lender tried to obscure the trail of dollar transactions by Russian, Chinese and Middle Eastern clients and attempted to silence a compliance officer who raised alarms about it, according to New York’s banking regulator.
State-controlled Agricultural Bank of China was ordered to pay a $215 million penalty and install an independent monitor for 18 months to oversee the establishment of compliance controls, New York State’s Department of Financial Services said in a consent order Friday.
New York and federal officials have aggressively pursued foreign banks over sanctions violations and poor anti-money laundering controls, led by $8.9 billion in federal and state fine against BNP Paribas SA, which pleaded guilty to violating sanctions and laundering laws.
But it’s unusual for a U.S. entity to levy such a penalty against a China-controlled lender. In July 2015, the U.S. Federal Reserve ordered Beijing-controlled China Construction Bank Corp. to ramp up its money-laundering controls without levying a fine. In September, Agricultural Bank of China itself was ordered to overhaul its money-laundering protections over “significant deficiencies.”
AgBank representatives in New York didn’t immediately respond to requests for comment. Two calls to the company’s Beijing press office and a press officer’s mobile phone went unanswered outside business hours Saturday.
“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,” DFS superintendent Maria Vullo said in a statement announcing the action, the biggest fine issued in her tenure that began earlier this year.
Skyrocketing Dollar Deals
AgBank conducted U.S. dollar clearing in rapidly increasing volumes since 2013 even as New York regulator warned it that it must first improve its compliance functions, according to New York’s consent order, which was signed by AgBank. Dollar-clearing transactions at the bank’s New York branch skyrocketed in 2014 and 2015, the regulator said.
The bank’s chief compliance officer in New York and other compliance personnel raised flags over transactions in New York, according to the DFS. These included “unusually large” dollar transfers, in round numbers, between Chinese and Russian companies and from Yemen companies to China, as well as “potentially suspicious dollar-denominated payments” from trading companies in the Middle East.
Some invoices appeared to be counterfeited or falsified, the compliance staff said, including dollar transactions apparently involving an Iranian party under U.S. sanctions. Some of these transactions were sent through the global interbank-messaging system, the Society for Worldwide Interbank Financial Telecommunication, using coded messages that masked client identities to avoid DFS screening, according to the consent order.
After bringing the coded SWIFT messages to bank managers’ attention in the fall of 2014, the chief compliance officer in New York was told not to communicate those concerns to regulators. The officer resigned in mid-2015, followed by other compliance workers and replacements had inadequate resources, the DFS said.
The DFS didn’t identify the chief compliance officer.
Earlier this year, the Beijing-based lender was sued by a former chief compliance officer who ran the firm’s compliance in New York. The officer, Natasha Taft, said she was forced out of her job after telling the New York Fed about money-laundering risks in trade-financing transactions and alleged the bank retaliated against her for the disclosures in late 2014. The bank has denied the allegations. Taft couldn’t immediately be reached for comment.
The DFS is responsible for overseeing the financial services industry in New York. It has enforcement powers over banks chartered in the state, as well as insurance companies. Most large U.S. banks are nationally chartered and regulated by the federal Office of the Comptroller of the Currency.