Money-laundering Inspection

The New York State Department of Financial Services (DFS) is planning to start an inspection into South Korean banks whether they are in compliance with state and federal anti-money laundering regulations.
The New York State Department of Financial Services (DFS) is planning to start an inspection into South Korean banks whether they are in compliance with state and federal anti-money laundering regulations.

South Korean banks are on alert as the New York State Department of Financial Services (DFS) is planning to start an inspection into their branches there in July. The banks could be subject to punitive and remedial actions if any case of incompliance with state and federal anti-money laundering regulations is found. Previously, NongHyup Bank was ordered to pay US$11 million (11.89 billion won) in penalty for negligence of anti-money laundering compliance by its New York branch. Kim Do-Jin, president of the Industrial Bank of Korea (IBK), recently flew to New York to ensure that the bank’s branch is ready for inspection.

According to investment banking (IB) industry sources on May 17, IBK CEO Kim is now on a trip to explain himself to the DFS about the current situation of law-abiding monitoring system established in its New York branch. This is to brace for the inspection of domestic banks’ local offices and branches scheduled in July. Earlier, the DFS and the Federal Reserve Bank of New York inspected the operations of IBK’s local branch and found that the IBK failed to meet the regulations concerning anti-money laundering. Since then, the IBK has strengthened its system as well as increased the related workforce. During his trip, Kim is trying to explain such corrective measures to the US financial regulators.

The situation is similar in other banks. Woori Bank has expanded its anti-money laundering team under the law-abiding support division to the “anti-money laundering division” and formed the “overseas anti-money laundering (AML) team” to strengthen its overseas AML monitoring system. An official from Woori Bank said, “The headquarters hired an employee who previously worked at the U.S. Department of the Treasury and relocated him to the New York branch. He is checking and improving compliance in the U.S. and working on the response to the inspections by the U.S. regulators. The bank also hired a local IT company to improve and optimize the anti-money laundering and regulation filtering system in the U.S.”

In addition, Shinhan Bank is now strengthening its competence in anti-money laundering in the U.S. An official from Shinhan Bank said, “We are planning to hire three to four more employees related to compliance and to start the process improvement procedure by connecting the headquarters, including international lawyers, and local companies. Kookmin Bank also increased the number of employees in charge of compliance in its New York branch from two to four this year.

An official from the IB industry said, “The U.S. financial authorities are strengthening management and supervision so domestic banks need to improve their systems. However, it is true that it takes a considerable amount of money for domestic banks which has small local offices and branches to meet the requirements. If the banks neglect it, they can face a heavy fine. So, they have no choice but to take action.”

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