The Industrial Bank of Korea has been made to pay $86million by the U.S. Department of Justice in a settlement resulting from criminal and civil charges pertaining to Iranian sanctions violations from its former customer. The story unfolded as it came to light that transfers totalling more than $1billion were made to state controlled entities in Iran, in direct violation of the U.S. unilateral sanctions imposed on Iran. Between 2011-2014 former client of Industrial Bank of Korea, US citizen Kenneth Zong, was the lead perpetrator in facilitating the laundering of funds derived from Iranian state entities. Zong was also aided by another US citizen and three Iranian nationals.

Zong has since been formally charged with a 47-count indictment, including violation of Iranian Sanctions, money laundering and conspiracy to commit money laundering. For the Industrial Bank of Korea however, his actions have proven considerably more costly. It was possible for Zong’s scheme to be established and then proliferate due to weak anti-money laundering controls in the Industrial Bank of Korea’s New York branch, the chosen location to carry out his scheme.

The bank had previously been warned for its shortcomings in affective Anti-Money Laundering controls back in 2016, however it continued to operate in the same manner. What is the outcome? The breakdown of the settlement has stipulated that the Industrial Bank of Korea will pay a $51million fines along with an additional $35million fine to be paid to the New York State Department. The settlement has also stipulated for stronger customer due diligence processes to be put in place as well as improved management oversight in the banks anti-money laundering framework. While it is worth noting that $86million dollar fine is a win in the fight against money laundering, can it be considered a good win? It seems a weak result considering the charges amounted to $1 Billion in transfers from sanctioned entities.

Zong’s actions would have been identified if the Industrial Bank of Korea had an effective AML governance framework operational controls. The case also points towards a weak culture and understanding of AML requirements within the bank. If you would like to know how Lysis can help assess the maturity of your firms AML Governance Framework please contact info@lysisfinancial.com. By Gregory Collis , Junior Consultant at Lysis Group