This Time, Industrial Bank Faces 100 Billion Won 'Fine Bomb'... Domestic Banks Face Consecutive Sanctions in the US for Inadequate Anti-Money Laundering Measures

IBK, Accused of Violating US Iran Sanctions... New York Branch's Annual Net Profit Multiplied Sixfold in Fines
Following NongHyup, IBK Among Domestic Banks Facing Consecutive Sanctions, Expect Significant Strengthening of Anti-Money Laundering Measures

[Asia Economy Reporter Kwon Haeyoung] IBK Industrial Bank of Korea has been hit with a 'fine bomb' worth approximately 100 billion KRW by the U.S. prosecutors and financial authorities for violating Iran sanctions at its New York branch. This amount corresponds to six years' worth of net profits (16 billion KRW annually) generated by IBK's New York branch, resulting in significant reputational risk as well as financial losses. Following NH Nonghyup Bank, the U.S. authorities have imposed consecutive sanctions on IBK for inadequate anti-money laundering measures, and it is expected that related operations of domestic banks operating locally will be significantly strengthened.

According to the financial sector on the 21st, IBK agreed to pay a fine of 86 million USD (approximately 104.9 billion KRW) to the U.S. prosecutors and the New York State Department of Financial Services regarding allegations of Iran sanctions violations at its New York branch. This comes six years after the U.S. prosecutors began their investigation in May 2014.

The issue originated from Company A, which IBK was transacting with. Company A engaged in intermediary trade between Iran and third countries and, through false transactions, used IBK's KRW settlement account from February to July 2011 to receive export payments and then remit U.S. dollars overseas. IBK failed to timely detect Company A's false transactions and was accused of violating the U.S. anti-money laundering laws during the remittance intermediary process.

It is reported that not only the U.S. financial authorities but also local prosecutors got involved due to allegations beyond simple anti-money laundering inadequacies, specifically violations of U.S. Iran sanctions laws that exclude Iran from the dollar payment system. While the New York State Department of Financial Services concluded its investigation with this fine, the U.S. prosecutors issued a two-year deferred prosecution agreement related to this matter.

An IBK official stated, "We understand the U.S. prosecutors' deferred prosecution agreement as a directive to strengthen anti-money laundering operations over the next two years," adding, "We will pay the penalty within the scope of the already reserved provisions and will continuously consult with domestic and international regulatory authorities to more effectively improve and maintain compliance systems, including anti-money laundering."

Previously, NH Nonghyup Bank's New York branch was also fined approximately 11 million USD (about 11.9 billion KRW) by the New York State Department of Financial Services in December 2017 for inadequate anti-money laundering operations. This amount far exceeds Nonghyup Bank New York branch's annual net profit (around 10 billion KRW).

The U.S. financial authorities are increasingly demanding stringent anti-money laundering operations from foreign banks operating locally, including domestic banks. Being sanctioned by local authorities not only lowers reputational standing but also risks being placed on the U.S. authorities' 'blacklist,' subjecting the bank to focused monitoring and potential restrictions on local business operations. Given the substantial financial losses involved, banks are continuously strengthening anti-money laundering operations at both domestic headquarters and overseas subsidiaries and branches.

IBK and Nonghyup Bank presidents personally visited their New York branches at the end of 2018 to oversee internal control operations such as anti-money laundering and to meet with financial authorities. This direct involvement by the CEOs aims to strengthen related systems. Measures such as improving local anti-money laundering systems and increasing staffing have also been implemented. KB Kookmin Bank and Shinhan Bank have also increased related personnel and started improving process procedures in coordination with their headquarters to enhance anti-money laundering capabilities. Woori Bank expanded its anti-money laundering team within the Compliance Support Department to an Anti-Money Laundering Department and established a 'Foreign AML Team.'

The Financial Supervisory Service also established an 'Anti-Money Laundering Office' at the end of 2017 to encourage financial companies to strengthen compliance operations. Recently, the Financial Action Task Force (FATF) has ordered enhanced control over transactions involving proxy accounts and strengthened measures against professional tax evasion, indicating that domestic banks' anti-money laundering efforts are expected to be further intensified.

This content was produced with the assistance of AI translation services.