On April 20, 2020, the Industrial Bank of Korea (IBK) and its New York branch (IBKNY) (collectively, the Bank) entered into a Deferred Prosecution Agreement (DPA) with the US Attorney’s Office for the Southern District of New York (SDNY), a non-prosecution agreement with the New York Attorney General and a Consent Order with the New York State Department of Financial Services (NYDFS), to resolve violations of the Bank Secrecy Act (BSA), the International Emergency Economic Powers Act , the Iranian Transactions and Sanctions Regulations and various provisions of New York law. The transactions at issue exceeded US$1 billion and the Bank agreed to an overall penalty of US$86 million. SDNY imposed a US$51 million forfeiture for the Bank’s willful failure to establish and maintain an anti-money laundering (AML) compliance program, finding that the Bank’s compliance failures were so extraordinarily egregious and sustained that the Bank specifically intended to violate its obligations under the BSA. NYDFS imposed a separate US$35 million penalty for the Bank’s failure to maintain appropriate books, accounts and records of all transactions, as well as its failure to maintain an effective and compliant AML program. Notably, the settlement with NYDFS follows a 2016 written agreement between the Bank, NYDFS and the Federal Reserve Bank of New York (the Written Agreement), reached after regulatory examinations identified serious deficiencies in IBKNY’s BSA/AML compliance program and its efforts to comply with regulations of the Department of the Treasury’s Office of Foreign Assets Control and New York State and federal laws.
This publication summarizes the conduct that led to these settlements, which began nearly 10 years ago. We discuss the compliance shortcomings identified in the Written Agreement and consider how the Bank’s repeated failures to address these deficiencies resulted not only in additional regulatory scrutiny but in criminal liability. We review the DPA and the Consent Order, and highlight the facts on which SDNY and NYDFS relied to find the Bank culpable. We then examine the lessons for US financial institutions and domestic branches of foreign banks. In particular, the IBK settlements demonstrate that an institution’s willingness to accept responsibility, adopt a culture of compliance and embrace fulsome cooperation with US regulators still can mitigate enforcement penalties, even when that willingness comes relatively late in the course of the investigation.