Bank of China targeted by US for money-laundering controls

[WASHINGTON] Bank of China Ltd must boost its money-laundering protections in the US in response to a regulator's enforcement action that cited deficiencies involving one of the world's biggest lenders.

The yet-to-be-disclosed case was brought by the US Office the Comptroller of the Currency, according to a copy of the regulator's order obtained by Bloomberg News. The OCC routinely leaves a bank's specific transgressions out of enforcement actions, so the agreement doesn't detail what Bank of China's US operations did wrong. The regulator hasn't imposed a fine.

Still, the action adds to troubles for the Beijing-based lender. Last year, prosecutors in Italy began pursuing Bank of China officials on accusations they helped move billions of dollars for clients involved in counterfeiting and prostitution.

In the OCC action, which was signed last month by Chen Xu, head of the bank's New York branch, the lender's US division agreed to fix policies for finding and reporting suspicious behavior among its customers, keep better track of currency transactions and limit its vulnerability to financial crimes.

Bryan Hubbard, an OCC spokesman, confirmed the enforcement action but declined to comment on what the agency found wrong at the bank or whether any further consequences could result.

Requests for comment to Bank of China about the OCC agreement and the other allegations the lender is facing were directed to Brett Philbin, an outside spokesman at Edelman for the bank. Mr Philbin didn't respond to requests for comment.

'STRONG MESSAGE'

"Any enforcement action is a strong message to an institution," said Robert Serino, a partner at BuckleySandler LLP in Washington, who formerly ran the OCC's enforcement and compliance division. It means the OCC either couldn't get the bank to fix its controls internally, or whatever the agency discovered was so serious it needed a swift, higher-level response, he said.

Formal agreements like this aren't the most stringent action the agency can take, but they sometimes develop into tougher punishments - even financial penalties - if the firm's response doesn't satisfy the regulator, according to Serino.

Separately, the Chinese bank has been battling a judge's contempt finding in a civil case in New York. US District Judge Richard J. Sullivan in Manhattan said last year the bank must produce information on its clients accused in a legal fight over counterfeiting luxury goods.

The bank had argued that could violate China's customer-secrecy practices, according to a court document. A filing on Wednesday showed the bank yielded to pressure from Judge Sullivan and said it delivered documents responding to the subpoenas.

Judge Sullivan's order in November cited the bank's "refusal to comply with US law, while it continues to receive the benefits attendant to its banking activity in the United States," and he said the bank was "flouting" the court's orders. Failing to meeting Judge Sullivan's order, which had a deadline last week, meant a fine of US$50,000 a day.

Lawyers for the bank said in Wednesday's court filing that Bank of China has now complied with the court orders with "all non-privileged documents" it could locate and believes the contempt finding is no longer valid, and that it shouldn't owe any sanctions payments.

Systemically Important Bank of China has global assets of about US$2.5 trillion and is on the Financial Stability Board's list of systemically important institutions. Its five US branches have about US$63 billion in assets, according to government records, and largely serve Chinese companies.

It's China's "most international and diversified bank" - according to documents it filed with US regulators - and is still majority-owned by the government.

Bank of China's global reach was built over a century, from its one-time status as the country's central bank to its role managing China's foreign- exchange operations. It listed as a public company in 2004 and bought a new office tower near Manhattan's Bryant Park last year.

In July, another giant, state-owned Chinese bank, China Construction Bank Corp, faced an enforcement action from the Federal Reserve similar to Bank of China's OCC action. The Fed ordered the lender to tighten the money-laundering controls in its New York branch.

BLOOMBERG