NongHyup Bank CEO Lee Dae-hoon/Courtesy of NongHyup Bank

NongHyup Bank, also known as NH Bank, would be inspected by the New York State Department of Financial Services (DFS) with regard to a possible breach of anti-money laundering (AML) laws.

A source familiar with the issue said on March 14 that the DFS will start its biennial audit of the Seoul-based lender’s New York branch next week, together with the Federal Reserve Board (FRB), and this will continue for the next six weeks.

When contacted, the DFS said “We do not comment on the department’s investigative processes.” But NongHyup admitted that the audit will start on March 18.

In 2017, NongHyup Bank faced an $11 million fine for failing to deal with the AML issue properly.

To grapple with the aftermaths, NongHyup Bank has put forth great efforts. Earlier this year, NongHyup Bank chief Lee Dae-hoon talked about it in an interview with a local media.

Last Year, I visited the FRB and DFS twice to explain our improvements,” Lee said. “I plan to visit them this year in May and November to build up perfect trust.”

However, it remains to be seen whether the FRB and DFS will give good marks to the bank as the two have sternly criticized practices of NongHyup Bank when it comes to AML.

Ideally, a bank’s examination ratings should improve over time as the institution receives the benefits of the guidance provided by the examiners and works to implement solutions to issue uncovered during the examinations,” it said in a 2017 report.

The opposite occurred at NongHyup-each successive examination uncovered an increasing number of deficiencies in connection with the New York branch, including its transaction monitoring processes and procedures.”

Click here to see the full text of New York State DFS’s consent order to NongHyup.

Against this backdrop, NongHyup officials seem to be sweating in the face of the DFS inspections. Especially, the New York DFS has been very strict on negligence in AML compliance.

Banks that violate AML requirements have been subject to prohibitively high fines. The amount was well above $100 million for lenders such as Habib Bank, Deutsche Bank, Intesa Sanpaolo, the Agricultural Bank of China and Mega Bank.

We have made great efforts to meet the requirements of New York in AML practices. We are quite sure that the DFS will evaluate our efforts positively this time around,” a NongHyup Bank official said.

Understandably, the other Korean banks are seemingly feeling uneasy and some are even stopping foreign currency exchanges at their offices in the United States.

On top of NongHyup Bank, major Korean firms including Woori, Shinhan, KB Kookmin, KEB Hana and the Industrial Bank of Korea have operations in the U.S.

Rumors have circulated stating that some of them have already been audited by the DFS and could be facing fines, although their parent banks keep denying this.


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