On April 20, 2020, US Attorney Geoffrey Berman announced criminal charges against the Industrial Bank of Korea (IBK) for violations of the Bank Secrecy Act (BSA) and for failing to institute an acceptable anti-money laundering program in its New York branch, resulting in over $1 billion in unlawful transactions in violation of the International Emergency Economic Powers Act. In response to the charges, IBK agreed to the terms of a Deferred Prosecution Agreement (DPA) in which the government agreed not to prosecute the bank for two years if IBK stipulated to a host of facts and allegations, agreed to refrain from any further criminal conduct and cooperate with all government investigations, implemented an adequate anti-money laundering (AML) program along with other remedial measures required by regulators, and pay civil forfeiture and penalties totaling $86 million. If IBK complies with the terms of the agreement for two years, the government will seek to dismiss all charges.
According to the DPA, IBK willfully failed to implement an AML plan after repeated requests for such a program by its New York compliance officer between 2011 to 2014, after a compliance officer was informed by outside regulators that its manual review system was insufficient. At one point, the compliance officer reported to his managers that he was six months behind on compliance requests and needed additional experienced BSA and AML staff to assist with the backlog. According to the Agreement, bank management failed to provide additional staff and only authorized overtime for the compliance officer and one inexperienced staff member to manage the manual AML process. Due to a lack of resources, the compliance officer failed to detect multiple suspicious transactions until months after the transactions were completed.
The unlawful transactions took place in 2011 when Kenneth Zong, an American citizen, who along with Iranian co-conspirators, attempted to evade US sanctions by transferring US dollars from Korea-based entities to Iranian-controlled entities according to the DPA. Zong’s scheme allegedly involved setting up shell companies in Korea and Iran to engage in bogus trade transactions based on falsified documents submitted to IBK and other banks in Korea. After the funds were converted to US dollars, they were deposited into accounts controlled by Zong and his cohorts according to the Agreement. It took over 5 months for IBK to discover the illegal transactions, and by then the bank had processed more than $1 billion worth of Zong's transactions. In August 2011, IBK reported $10 million in suspicious transactions to the Department of Treasury’s Office of Foreign Assets Control, but never disclosed the remaining $990 million. IBK also failed to disclose the bank’s BSA violations before the government launched an investigation.
Berman emphasized his commitment to upholding the integrity of the American financial system and the importance of effective anti-money laundering programs stating that, “[b]anks conducting business in the US have a responsibility to ensure that they establish safeguards against the exploitation of the banking system by sanctioned entities that foster, promote or engage in terrorism.” Berman stressed that his office remains committed to enforcing the law against any bank that willfully fails to comply.