Foreign banks and BSA compliance

October 17, 2018 3 minute read

Unaligned and fined – Mashreqbank

The New York State Department of Financial Services (NYSDFS) fined Mashreqbank $40 million last week for violations of the Bank Secrecy Act. Mashreqbank, whose parent bank is based in the United Arab Emirates, is the only foreign branch of the bank in the US, where it deals in transactions worth around $360 million each year. The bank’s crimes according to the NYSDFS include:

  • Failing to have tailored policies and procedures for the specific risks presented by the bank’s clients in high-risk geographies  
  • Having an insufficient process for monitoring transactions and escalating alerts associated with suspicious activity
  • Having an unsatisfactory system for producing and maintaining records in relation to clients and their activity

Mashreqbank will receive more than just a fine for the above crimes. The NYSDFS have added various consent orders to the settlement they reached with the bank. For example, the bank will have to hire a third party compliance consultant immediately to “oversee and address” the deficiencies in the bank’s compliance processes. It will also have to hire a second consultant to deal specifically with transactions handled by the bank between April and September 2016. Foreign branches of banks, such as Mashreqbank, often fail to align their compliance practices written in their home nations with the requirements of host nations. Fines and consent orders are an effective way of bringing about alignment.  

European Getaway for risky individuals

“Risky individuals are buying access to the EU” was the key finding of a new report by Global Witness and Transparency International released last week. The report, entitled “European Getaway” revealed that over 6000 individuals have purchased European citizenships over the past ten years. However, thankfully, the tide against these so-called “Golden Visas” seems to be turning. Only yesterday, the OECD published a list of 21 jurisdictions, three of which are in Europe, that threaten international efforts to stop tax evasion by selling citizenships or residencies.

The issue of Golden Visas has a special poignancy this week. Yesterday, marked the one year anniversary of the murder of Maltese journalist, Daphne Caruana Galizia. At the time of her death, Daphne was investigating, among other things, the Maltese Golden Visa scheme which is one the most profitable and murky in Europe. The “investigation” into her death is yet to turn up any leads but it is widely suggested that the Maltese state and a certain citizenship-for-sale company may have been involved. Golden visas may seem like a niche issue but given their role in a very public and brutal killing, as well as tax evasion they should be taken seriously. 

What skeletons? China and international AML standards

China is expanding its financial crime-fighting focus beyond corruption to include money laundering and terrorist financing. On Wednesday, the People’s Bank of China released new rules for online financial institutions which will require them to perform KYC checks and report suspicious behavior. These new rules are in line with China’s wider efforts to meet international AML/CFT standards. How well they have done this will be determined by the results of their FATF mutual evaluation. This was conducted in June and the results will be released in February 2019.  

Next year China will have the opportunity to set the global agenda when they take the revolving Presidency of FATF. It will be interesting to see which issues they choose to highlight. One area that is likely to be avoided is the issue of Chinese organized crime. Last year, scandals in Canada and Spain gave an insight into the global reach of the Chinese Triads and how they launder their money. Another issue that might be kept off the agenda is the amount of suspect Chinese wealth being deposited, much like Russian money was in the early 1990s, around the world today. We will have to wait until next year to find out what is highlighted and what is hidden.