Mashreq Bank was recently fined $40 million by the New York State Department of Financial Services (DFS) after it was determined that the bank had inadequate OFAC compliance systems.
The fine stemmed from the institution’s inability to properly monitor transactions in compliance with U.S. anti-money laundering laws—although, it should be noted that the bank had not willfully committed regulatory violations.
According to the official order issued by the regulator, the bank provides U.S. dollar clearing services to various clients located in Northern Africa, Southeast Asia, and throughout the Middle East. All of these regions are classified as high-risk compliance areas when it comes to financial transactions. Additionally, the bank clears more than one million U.S.-dollar transactions annually, worth $350 billion.
The DFS first started investigating the UAE-bank in 2016. The investigation immediately highlighted the overall operational deficiencies that existed in the bank’s policies governed by the Bank Secrecy Act (BSA), Anti-Money Laundering (AML) rules and Office of Foreign Assets Control (OFAC) regulations.
The official report noted that “a third-party vendor’s effort to validate these transaction monitoring rules was determined to be deficient, doing little more than summarizing the interim rules and indicating their purported adequacy.”
In addition, DFS determined that the bank’s recordkeeping was inadequate. The report detailed how “examiners found that records regarding specific alerts and dispositions continued to lack ‘detailed information, making it difficult for examiners to assess the adequacy of investigations conducted by compliance staff,” adding that, “rationales for closing alerts failed to include essential information, such as the relationship between the transacting parties.”
Financial Services Superintendent Maria T. Vullo acknowledged the bank’s efforts to rectify the problem.
“DFS appreciates Mashreq Bank’s strong cooperation in resolving this matter. By this consent order, the bank is being held accountable for ensuring vigilance against money laundering and other illicit activity to ensure that our financial system remains safe and sound,” she said in an official statement.
The Mashreq Bank case further highlights the importance of implementing a strong compliance system—especially one that includes a robust vetting and recordkeeping system—in addition to having the necessary resources and procedures in place to help ensure its effectiveness.
The bank did not appeal the fine and agreed to pay it in full, without seeking any specific tax deductions, fine reductions, or any other type of monetary relief.