Fed Finds ‘Serious Deficiencies’ At China’s ICBC
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The US Federal Reserve has ordered Industrial & Commercial Bank of China to overhaul its anti-money laundering protections after finding “serious deficiencies”.
ICBC, the world’s largest lender by assets, must offer a written plan within 60 days to the US central bank detailing how it will strengthen mechanisms to flag and report suspicious transactions, including those involving “politically exposed persons”. The Fed did not issue a fine.
As part of the order, ICBC must also hire an independent party approved by the Fed within 30 days to audit the bank’s dollar clearing transaction activity during the final six months of 2016.
ICBC was not immediately available to comment.
China has cracked down on money laundering domestically by limiting cash withdrawals and instituting stronger reporting measures for suspicious purchases. However, oversight has remained more lax at overseas branches of some of China’s largest banks.
“Foreign banks are generally not good at compliance. It isn’t high on their agenda,” said a former Fed official who declined to be named. “In many cases, compliance is also taken very lightly back home which means foreign banks are in for a rude awakening when they come to the US.”
With a market capitalisation of $351bn and branches in more than 40 countries, ICBC is the most globalised of China’s banks. Its New York branch opened in 2008, and the bank rents space in Manhattan’s Trump Tower.
China’s three other state-owned banks have faced similar demands from the Fed to overhaul their money laundering controls, including Agricultural Bank, which was slapped with a $215m penalty in 2016 by the central bank for hiding suspicious transactions.
UN sanctions against the Pyongyang regime have also been a sticking point among US regulators and Chinese banks, which have long handled transactions on behalf of North Korean entities, including some involved with the country’s ballistic missile and nuclear weapons programmes.
Long term, China is hoping to bypass the Fed altogether. In 2015, it launched an international renminbi payments system to encourage global use of the Chinese currency. If widely adopted, the payments system would eventually allow China to send money globally in renminbi, without need for US dollar clearance, which would subject it to oversight from the Fed.
Banks from other countries have also struggled to bolster their anti-money laundering compliance as cash flows have become more global.
In Australia, regulators are probing the Commonwealth Bank of Australia for 53,800 breaches of anti-money-laundering and counter-terrorism laws, largely from Hong Kong drug syndicates which used the bank’s deposit machines to launder cash.
In 2012, HSBC and Standard Chartered, the UK’s two largest banks, were slapped with a record $2.6bn in combined penalties after US regulators found the two banks had helped dubious clients that included Mexican drug cartels and terrorist financiers. Three years later, an FT investigation found that Standard Chartered had handled foreign exchange transactions for Iranian entities, in violation of international sanctions.
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Author: Emily Feng and Henny Sender
Source: FT
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