Korean banks prep for probe by U.S. regulator

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Korean banks prep for probe by U.S. regulator

Korean banks operating in the United States are gearing up for investigations by New York’s financial watchdog into their anti-money laundering systems.

The New York Department of Financial Services (DFS) will start probes into six Korean banks operating in New York either by the end of this month or next month. The regulator fined Nonghyup Bank $11 million last December for inadequate control and a compliance system against money laundering, marking the first time that a Korean bank was fined by the U.S. agency.

The six banks to be investigated include Nonghyup Bank, Woori Bank, KB Kookmin Bank, Shinhan Bank and two state-run banks - the Industrial Bank of Korea and the Korea Development Bank.

The Industrial Bank of Korea has hired more compliance staff, and Kim Do-jin, the bank’s CEO, flew to New York to oversee preparation and meet with representatives of the New York regulator last month.

The bank also upgraded the status of their overseas compliance unit from a subdivision to a separate department.

“I heard that the DFS has ordered the heads of the six banks to come to the New York office to make them report on how the banks run their compliance system,” said a source at one of the banks.

Nonghyup Bank is also reviewing its staff and internal system to avoid another fine. It increased the number of staff in its anti-money laundering division from 16 to 23.

Despite the effort, Korea’s financial watchdog, the Financial Supervisory Service, warned that the bank has not sufficiently improved its internal control system.

Woori Bank raised the status of its anti-money laundering division to a separate team. It recently recruited 11 more lawyers for a total of 24 and added three more compliance specialists to the team, according to the bank.

It also dispatched an employee with experience working at the U.S. Treasury Department to the New York branch to better deal with regulatory issues.

“As we’ve revamped our system, we believe there will be no major punishment,” said a source at Woori Bank.

Other banks, such as Shinhan and KB Kookmin, have started recruiting more compliance staff.

Since penalties from the New York DFS would damage the reputation of Korea’s financial industry in general, local financial regulators are also working to encourage the banks to strengthen their control and compliance systems.

The Korea Financial Intelligence Unit (KoFIU), a body under the Financial Services Commission that monitors illegal financial activities such as money laundering and terrorist financing, established a task force team to monitor the process.


BY PARK EUN-JEE [park.eunjee@joongang.co.kr]

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