Industrial Bank of Korea settles US, New York criminal probes over $1 billion Iran transfer

Reuters – Industrial Bank of Korea, one of South Korea’s largest banks, will pay $86 million to settle U.S. and New York state criminal and civil charges it allowed an illegal transfer of more than $1 billion to Iran that violated U.S. sanctions.

Authorities said on Monday that IBK entered a two-year deferred prosecution agreement with the U.S. Department of Justice and a nonprosecution agreement with New York Attorney General Letitia James.

The cases stem mainly from an alleged 2011 scheme by former IBK client Kenneth Zong, a U.S. citizen formerly of Anchorage, Alaska and now in his early 80s, to violate Iran sanctions by arranging transfers to entities controlled by that country.

IBK, based in Seoul, accepted responsibility for conduct detailed in court papers, accusing it of a felony violation of the Bank Secrecy Act for having inadequate anti-money laundering controls at its New York branch from 2011 to at least 2014.

The settlements include the forfeiture of $51 million, plus a $35 million civil fine paid to the New York State Department of Financial Services. They also require improved customer due diligence and management oversight.

“Banks conducting business in the U.S. 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,” U.S. Attorney Geoffrey Berman in Manhattan said.

Carl Loewenson, a U.S.-based lawyer for IBK, declined to comment. The bank also declined to comment.

IBK had about $242 billion of assets as of June 30, 2019, with about $180 million in the New York branch. It has been licensed in the state since 1990.

Authorities said Zong, posing as a small business owner, faked contracts and invoices for the sale of marble tiles to convert Korean won drawn from restricted IBK accounts into more easily-traded dollars, and then disbursing the money globally.

Zong had four co-conspirators, including three Iranian nationals and one U.S. citizen, prosecutors said.

New York’s financial services department said IBK’s oversight failures persisted even after its 2016 agreement with the Federal Reserve Bank of New York to address the shortfalls.

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Zong was imprisoned in South Korea after being convicted of crimes there and has not been permitted to leave the country, according to court papers and James’ office.

U.S. prosecutors charged Zong in a 47-count indictment in December 2016 with violating Iran sanctions, money laundering, and money laundering conspiracy. He has yet to enter a plea.

Reporting by Jonathan Stempel in New York, Editing by Steve Orlofsky and Grant McCool