On November 4, the New York State Department of Financial Services (“DFS”) and the Agricultural Bank of China agreed to a Consent Order requiring the bank to pay a $215 million penalty and to install an independent monitor to review the bank’s program for compliance with anti-money laundering laws (“AML”), including the Bank Secrecy Act (“BSA”).

The Agricultural Bank of China’s New York Branch (the “Branch”) conducts U.S. dollar clearing in large volumes through foreign correspondent accounts.  Since U.S. dollar clearing – a process by which U.S. dollar-denominated transactions are settled between counterparties through a U.S. bank – is a high-risk business line that creates an opportunity for bad actors to launder money or facilitate terrorist transactions, transaction monitoring systems are particularly important for entities that engage in this type of activity.

According to the Consent Order, despite warnings by DFS in 2014 that the Branch’s transaction monitoring systems were inadequate for a greater volume of clearing activity, the Branch substantially increased its clearing activity without implementing stronger monitoring systems.  Furthermore, when the Chief Compliance Officer (“CCO”) raised concerns in 2014 about potentially suspicious activity, Branch management failed to properly address these concerns and curtailed the CCO’s independence and ability to carry out vital compliance responsibilities.

The Consent Order states that during its 2015 investigation, DFS discovered an “‘unmanageable’ backlog of nearly 700 alerts of potential suspicious transactions” at the Branch that had not yet been investigated.  Additionally, DFS uncovered several alarming transaction patterns, including unusually large round-dollar transfers between Chinese and Russian companies and potentially suspicious dollar-denominated payments from trading companies located in the Middle East.

In a press release accompanying the Consent Order, New York Superintendent of Financial Services Maria T. Vullo stated that “[t]he 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.”  Therefore, according to Superintendent Vullo, “serious sanctions and remedial action” were implemented.  The press release further noted that the settlement was the first between DFS and a Chinese bank, and “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.”

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