Dubai-based Mashreqbank has agreed to pay $40 million to the New York State Department of Financial Services for the bank’s NY branch failing to appropriately address gaps in security clearances for customers and financial clients located in Southeast Asia, the Middle East and Northern Africa-regions that have been identified as high-risk jurisdictions.
Of the 139 foreign financial institution customers the bank has, two-thirds of clients were deemed by the NY regulator as high-risk and now Mashreqbank was given 45 days to conduct a thorough review.
The NY investigation uncovered weaknesses in the New York Branch’s ‘know your customer’ (KYC) practices.
Copy of order received by AMEinfo
This follows a 2-year “safety and soundness examination” and investigation that began in June 2016, followed in September 2017 by the Department and the Federal Reserve Bank of New York (“FRBNY”) conducting a joint examination of the New York Branch, leading to findings via a Report of Examination (ROE) describing their joint findings; and in May 2018, the Bank provided its response to the 2017 ROE.
AMEinfo, which has received a copy of the “CONSENT ORDER UNDER NEW YORK BANKING LAW SECTIONS 39 and 44”, detailing the issue and the steps needed to take corrective measures. Mashreq confirmed the agreement in a statement and said it remained committed to maintaining and enhancing its compliance with regulatory expectations.
Mashreqbank’s size of dealings
Mashreq is an international banking institution with more than 70 branches and assets totaling over $34 billion and is licensed by the Department to operate a foreign bank branch in New York State. The New York branch, which provides correspondent banking and trade finance services, has assets totaling about $1.1 billion as of July 31, 2018, and has operated in New York since 1989, the consent order said.
Mashreq is the oldest and largest private bank in the UAE, with approximately 4,000 employees worldwide. The New York Branch is the only one located in the United States.
In 2016 alone, the Branch cleared more than 1.2 million USD transactions with an aggregate value of over $367 billion. In 2017, the branch cleared well over I million USD transactions with an aggregate value exceeding $350 billion.
“In light of the risks presented by the market it serves, it is essential that the Bank and its New York Branch maintain and enhance a compliance infrastructure equal to the task of managing these risks, said the Order.
“Deficiencies identified during examinations conducted by the Department and counterparts at the FRBNY in 2016 and 2017 demonstrate that the Branch has not yet completed its efforts to develop a compliance infrastructure commensurate with the risks presented by its business activities.”
The Order admits that the bank’s NY Branch sought to address the backlog of transaction monitoring alerts by engaging temporary employees to conduct necessary reviews and analyses.
“In its interactions with the Department concerning this resolution of the deficiencies identified in the 2016 and 2017 Examinations, the Bank has demonstrated a keen interest in, and commitment to, remediating the shortcomings identified above, and to building an effective and sustainable BSA/ AML and OF AC compliance infrastructure,” it said.
According to the Order, Mashreq and the New York Branch’ failure to maintain an effective and compliant anti-money laundering program, and make available at the Branch appropriate books, accounts and records reflecting all transactions and actions, meant that:
1-The Bank shall pay a penalty pursuant to Banking Law§§ 39 and 44 to the Department in the amount of $40,000,000, within ten (10) days.
2-Mashreq and the Branch shall engage an independent third party of the Department’s choosing, within ten (10) days of the date of this order, to immediately consult about and assist the Branch in addressing deficiencies in the Branch’s compliance function.
3-The term of the Compliance Consultant’s engagement shall be for a period of six months and may be extended further.
4-Within forty-five (45) days of this Order, Mashreq and the New York Branch shall engage an independent third party acceptable to the Department to conduct a review of the Branch’s USD clearing transaction activity for the six-month period from April 1, 2016, through September 30, 2016.
5-Within one-hundred forty (140) days of the engagement of the Compliance Consultant, Mashreq, and the Branch shall jointly submit a written revised BSA/ AML compliance program for the Branch, acceptable to the Department.