The news that Mega International Commercial Bank has agreed to pay US$180 million to New York regulators for money-laundering violations, the first Taiwanese bank in a decade to face this kind of punishment, has caught many people off-guard.
The heavy fine will affect not only the lender’s — and its parent, Mega Financial Holding Co’s — earnings this year, but also the credibility of Taiwanese banks’ efforts to enforce compliance issues with foreign countries. It also raises the question whether the government and domestic players are ready for the challenges of a more competitive global banking environment.
On Friday, the New York State Department of Financial Service (DFS) announced the penalty and ordered Mega International to install an independent monitor for its failure to comply with New York’s rules against money laundering rules in light of certain suspicious transactions made by the bank’s New York branch in 2012.
Under the US Bank Secrecy Act, financial institutions in the US must report any cash transaction of more than US$10,000 and bring any dubious activity to the attention of regulators as part of their efforts to prevent money laundering. The law also requires banks to have complex controls in place to detect any criminal activity.
The DFS said the compliance failures at the New York branch were “serious, persistent and affected the entire Mega banking enterprise,” and labeled the bank’s compliance program a “hollow shell.”
It also said Mega International’s head office was “indifferent” to risks associated with transactions involving Panama, following the detection of several suspicious transactions between the New York and Panama branches, with many accounts at the bank’s overseas branches apparently opened with the assistance of Panama-based law firm Mossack Fonseca.
This is the same law firm that was at the epicenter of the so-called “Panama Papers” leaks earlier this year. It has allegedly helped its clients to avoid taxes and skirt financial oversight worldwide.
The DFS’ criticism is serious. The the issue hightlights Taiwanese regulators’ lack of oversight on the overseas branches of domestic banks. However, it is not known if the penalty is an indication that Mega International committed money laundering, a result of the bank’s lack of familiarity with US regulatory requirements, or simply a failure to exercise a minimal degree of caution with cash transactions at its branches. Nevertheless, it shows a lapse in Mega International’s internal controls, given that the bank has been cited for similar violations in other nations in recent years, including China, Australia and South Africa.
Taiwan is part of the global village and shares a responsibility to combat international money laundering and other financial crimes.
Although Taiwan is a small nation, the ATM heist involving First Commercial Bank last month clearly shows that it is on the radar screens of international organized crime rings.
While Taiwan’s regulators claim the nation has comprehensive regulations to control banking operations and comply with money-laundering rules, the issue of the US fine on Mega International just shows that Taiwan still has room to improve.
This is particularly true at a time when the Financial Supervisory Commission is spearheading its “regional champions” plan for local banks by encouraging them to develop into regional leaders through mergers and acquisitions. It is crucial that Taiwanese banks observe the laws of other countries, just as they do this nation’s.
They also need to work harder on oversight of their overseas branches and awareness of potential compromises of their internal supervision, auditing and information security. If not, it is impossible to see how local banks will be able to gain a strong foothold in the global market.
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