DFS FINES MEGA BANK $180 MILLION FOR VIOLATING ANTI-MONEY LAUNDERING LAWS
Consent Order Requires Bank to Establish Effective Compliance Controls and to Retain Independent Monitor for Two Years
Financial Services Superintendent Maria T. Vullo today announced that Mega International Commercial Bank of Taiwan will pay a $180 million penalty and install an independent monitor for violating New York’s anti-money laundering laws. The fine is part of a consent order entered into with the Department of Financial Services (DFS) pursuant to which Mega Bank shall take immediate steps to correct violations, including engaging an independent monitor to address serious deficiencies within the bank’s compliance program and implement effective anti-money laundering controls. Mega Bank is a major international financial institution with approximately $103 billion in assets, including $9 billion at its New York branch.
“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,” said Financial Services Superintendent Maria T. Vullo. “The compliance failures that DFS found at the New York Branch of Mega Bank are serious, persistent and affected the entire Mega banking enterprise and they indicate a fundamental lack of understanding of the need for a vigorous compliance infrastructure. DFS's recent examination uncovered that Mega Bank's compliance program was a hollow shell, and this consent order is necessary to ensure future compliance.”
Violations of anti-money laundering requirements at Mega Bank were uncovered in a recent DFS examination, which found that the bank’s head office was indifferent toward risks associated with transactions involving Panama, recognized as a high-risk jurisdiction for money-laundering. Mega Bank has a branch in Panama City and another in Panama’s Colon Free Trade Zone. DFS’s investigation identified a number of suspicious transactions running between Mega Bank’s New York and Panama Branches. The investigation also determined that a substantial number of customer entities, which have or had accounts at several other Mega Bank branches, were apparently formed with the assistance of the Mossack Fonseca law firm in Panama. Mossack Fonseca is one of the law firms 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.
Among the findings of the DFS investigation:
- The BSA/AML officer for the New York branch, who was based at the bank’s Taiwan headquarters, and the branch’s chief compliance officer both lacked familiarity with U.S. regulatory requirements. In addition, the chief compliance offer had conflicted interests because she had key business and operational responsibilities, along with her compliance role.
- Compliance staff at both the head office and branch failed to periodically review surveillance monitoring filter criteria designed to detect suspicious transactions. Also, numerous documents relied upon in transaction monitoring were not translated to English from Chinese, precluding effective examination by regulators.
- The New York branch procedures provided virtually no guidance concerning the reporting of continuing suspicious activities; had inconsistent compliance policies; and failed to determine whether foreign affiliates had in place adequate AML controls.
Today’s action highlights the importance of DFS’s new risk-based anti-terrorism and anti-money laundering regulation that requires regulated institutions to maintain programs to monitor and filter transactions for potential BSA/AML violations and prevent transactions with sanctioned entities. The regulation, which takes effect on January 1, 2017, requires regulated institutions to submit an annual board resolution or senior officer compliance finding confirming steps taken to ascertain compliance with the regulation.
Under the consent order, Mega Bank will install an independent consultant within ten days of the selection by DFS to implement changes to its policies and procedures and immediately address compliance deficiencies at the New York branch. The order also calls for the bank to engage an independent monitor within thirty days of its selection by DFS for two years to conduct a comprehensive review of the effectiveness of the branch's compliance program. The independent monitor will also commence a Transaction and OFAC Sanctions Review to determine whether transactions inconsistent with or in violation of the OFAC Regulations, or suspicious activity involving high risk customers or transactions were properly identified and reported from 2012 to 2014. The monitor will be selected by and report directly to DFS.
To view a copy of the NYDFS order regarding Mega Bank, please visit this link.