Mashreqbank agrees to pay $40mn for New York compliance failures

Mashreqbank agrees to pay $40mn for New York compliance failures

The New York State Department of Financial Services (DFS) has published the text of a Consent Order that it agreed with Mashreqbank on 10 October. The Order entails Mashreqbank paying a settlement of $40mn and taking a wide range of measures to strengthen its compliance procedures in relation to Banking Secrecy Act/Anti-Money Laundering (BSA/AML) provisions.

The text of the Consent Order can be seen here.

The Order arises from Examinations conducted in 2016 and 2017 and the bank's response to the DFS's findings and recommendations arising from those examinations.

The DFS notes that in 2016, Mashreqbank's New York branch cleared more than 1.2 million US dollar transactions with an aggregate value of over $367bn and that in 2017 it cleared "well over" one million such transactions with an aggregate value exceeding $350bn.

The DFS says that in the years before its 2016 examination the New York branch's transaction monitoring system had some manual components, and that this, in the opinion of the DFS, was inadequate to address the risks related to an annual clearing volume of more than $300 bn. Other points raised by the DFS include:

  • in some cases the same analyst conducted first and second level reviews of the same transaction
  • there was a three month backlog in the generation of transaction monitoring alerts (The DFS notes that typically 1,500-1,600 alerts were generated per month) 
  • the branch's customer base consisted principally of foreign national institutions located in high-risk regions but, in the examiners' view, due diligence files lacked robust information about its foreign correspondent customers' markets
  • customer due diligence contained gaps and did not provide specific information regarding analysis of expected-versus-actual transactional activity
  • branch staff could not substantiate or provide detailed rationales for waiving specific alters and cases

The DFS is critical of Mashreqbank's head office which, it says, appointed a third party auditor to review the New York branch's BSA/AML compliance but did not ensure tht the third party's report was of a sufficient standard. 

The DFS notes that Mashreq cooperated fully with its investigation and describes its conduct in response to the investigation as 'laudible'.

The report details the range of remedial measures that Mashreqbank will have to undertake within the next 10, 45 and 140 days.