New York Fines South Korean Bank Used For Iran Payments
April 20 2020 - 10:29AM
Dow Jones News
By Andrew Jeong
New York authorities fined a South Korean bank over long-running
gaps in its defenses against money laundering, after the lender's
Manhattan branch was used to launder cash for Iran.
The state-backed Industrial Bank of Korea must pay $35 million
for lapses dating back to 2010, which centered on failing to
install and maintain an adequate transaction-monitoring system, New
York State's Department of Financial Services said in a document
reviewed by The Wall Street Journal. A spokesman for the bank said
he had no immediate comment.
Starting in 2011, Kenneth Zong, an Alaskan, conducted more than
$1 billion of illegal transactions on behalf of Tehran using his
accounts with the bank, according to the document. Mr. Zong
convinced bank officials that the Iranian government owed him cash
for construction materials he had sold to it, according to the
Justice Department. Mr. Zong fabricated invoices, contracts, and
bills of lading to deceive bankers, prosecutors have said.
The bank then released cash held in one of its Korean
won-denominated accounts to Mr. Zong. The Industrial Bank was one
of only two in South Korea that Seoul officials had designated in
2010 to conduct permissible trade with Tehran while also complying
with U.S. sanctions. Relevant Industrial Bank accounts have been
frozen since last year, as the U.S. strengthened its sanctions
regime on Tehran, the bank spokesman said.
Mr. Zong then converted the cash into U.S. dollars through the
bank, before wiring the money to Iranian officials world-wide.
Tehran awarded Mr. Zong with a fee estimated at up to $17 million
for his services, U.S. prosecutors have said.
Mr. Zong has been indicted on 47 counts of violating
Iran-related sanctions in the U.S. He was in South Korean custody
as of late 2018, after local courts convicted him of tax law
violations, related to the transactions, the Justice Department has
said.
Mr. Zong's son, Mitchell, was also indicted for conspiring to
commit money laundering with his father, and was sentenced to 30
months in federal prison and fined $10,000 in December 2018.
Mitchell laundered about $980,000 of "Iranian derived funds,"
according to the Justice Department. The Zongs and their legal
representatives couldn't be immediately reached.
New York officials said Industrial Bank had repeatedly failed to
set up sufficient compliance systems despite several warnings
during and after the Zong family's actions, which lasted until at
least 2014. It was only in 2019 that officials deemed its
compliance program adequate.
"While the Department applauds the Bank for its ultimate efforts
after eight examination cycles of noncompliance, one positive
examination report does not equate to a sustainable, safe and sound
financial institution," state officials said in the document
reviewed by the Journal.
Authorities said the fine was reduced to reflect the bank's
substantial cooperation in the multiyear investigation.
Industrial Bank is publicly traded in Seoul, but its majority
shareholder is South Korea's finance ministry. It has assets valued
at about $242 billion, while its New York branch held about $180
million as of June last year.
Senior Trump administration officials have recently brushed
aside calls to ease economic sanctions on Tehran due to concern
that Iran would use cash for military investments. However,
Secretary of State Mike Pompeo has said the U.S. has offered to
provide food and other humanitarian aid to Iran, amid the
coronavirus pandemic.
Write to Andrew Jeong at andrew.jeong@wsj.com
(END) Dow Jones Newswires
April 20, 2020 10:14 ET (14:14 GMT)
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