In our latest ACFCS Enforcement Roundup, a Chinese telecommunications company pays a record $1 billion-plus penalty – again, while it unintentionally acts as the fulcrum between a world power trade tiff, Australia hands down a historic fine of its own to shock the country’s banking sector into better financial crimes compliance and the U.S. and France show unprecedented coordination and cooperation to sanction a bank accused of  rigging rates and doting on dictators.

The actions have a plethora of compliance lessons and also reinforce regulatory and investigative focal points that financial institutions the world over should take to heart, including:

  • For banks and corporates with connections to China, Russia, realize that the United States is worried about sensitive technologies and corrupt influence-peddling, and dollars, flowing through the international financial system. So you had better find potentially illicit or graft-gilt connections before regulators do.
  • If you are a financial institution in Australia, even though your bank might not have gotten hit yet, the new reality is that Austrac is engaging in a much broader and deeper look at country-wide compliance programs and examiners have already broken the seal on a record penalty — so don’t think your operation is immune to more scrutiny, informal actions or formal fines.
  • If you are a large, foreign bank, that also transacts in U.S. dollars or has key connections in the U.S., the need to be aware that U.S. regulators and investigators are worried about what is coming through your correspondent networks, including what may be secretly entering through those portals as risky and nigh invisible “nested” entities. So it would be wise to gauge your foreign correspondents’ compliance measures and see if any have themselves connected to high-risk regions or entities averse to a U.S. spotlight.

United States

Facing oblivion, ZTE to pay record $1.4 billion fine, upgrade compliance, to regain access to U.S. products

With high-stakes horse trading behind the scenes to avert a looming trade war, the U.S. has levied a record $1.4 billion penalty against China’s largest publicly-traded telecommunications manufacturer in a settlement that would also allow the firm to re-engage U.S. suppliers – but only after agreeing to severe compliance and leadership shakeups.

This latest civil penalty is the heftiest ever imposed by the U.S. Commerce Department’s Bureau of Industry Security (BIS), but is still likely a welcome alternative to what Zhongxing Telecommunications Equipment Corporation and ZTE Kangxun Telecommunications Ltd., referred to as ZTE Corp., had faced: the prospect of a company valued in the tens of billions of dollars and employing an estimated 75,000 closing up shop. To read the order, click here.

Both world powers had been saber rattling after the U.S. blocked ZTE’s ability to access U.S. supply chains in April, accusing the company of violating a March 2017 monetary enforcement action related to breaching U.S. sanctions laws by trading with Iran and North Korea.

That prior action also held a bevy of firsts with the U.S. Justice and Commerce Departments, along with the U.S. Treasury’s Office of Foreign Assets Control (OFAC), handing down a $1.2 billion penalty for ZTE not just engaging with blacklisted rogue regimes, but then engaging in a vast conspiracy to institutionalize lying about the violations – a dynamic blessed by top execs.

The former penalty against ZTE, also historic on many fronts for violating export control restrictions and sanctions rules, came with a bevy of firsts for the U.S. Justice Department, U.S. Treasury’s Office of Foreign Assets Control (OFAC), and the U.S. Commerce Department.

This earlier civil penalty was the largest ever imposed by BIS and the combined $1.2 billion in penalties, would have been the “largest fine and forfeiture ever levied by the U.S. government in an export control case,” not involving a bank, according to penalty documents. To read ACFCS coverage of the March 2017 action, click here.

The actions against ZTE play out in a broader context of tit-for-tat tariff tactics between U.S. President Donald Trump and China, as he purportedly seeks a better overall trade balance between the two countries, though some have argued this will simply start a race to the bottom where vital supplies, components and even food stuffs become more expensive for the everyman.

In the latest action, ZTE will also be required by the new agreement to retain a team of special compliance coordinators selected by and answerable to BIS for a period of 10 years. Their function will be to monitor on a real-time basis ZTE’s compliance with U.S. export control laws.

This is the first time BIS has achieved such stringent compliance measures in any case.  ZTE is also required under the new agreement to replace the entire board of directors and senior leadership for both entities.

Finally, the new agreement once again imposes a denial order that is suspended, this time for 10 years, which BIS can activate in the event of additional violations during the ten-year probationary period. These collectively are the most severe penalty BIS has ever imposed on a company.


Austrac levies record $700 million penalty against Australia’s second largest bank for ‘serious’ AML breaches, ATM laundering 

Australia’s financial intelligence unit levied a record $700 million penalty against the country’s second largest bank for a host of “serious” and longstanding anti-money laundering (AML) failures that allowed criminal drug dealers and gun runners to launder potentially hundreds of millions of dollars.

The penalty is the culmination of months of both internal and external pressure against Australia, regulators and its banking sector – with the Commonwealth Bank of Australia (CBA) viewed as the poster child for what is wrong with the country’s financial crime oversight mechanisms. To read the order, click here.

The country’s chief AML regulator, Australia’s Transaction Reports and Analysis Centre (Austrac) was also in the hot seat to produce a statement-making action that would reassure global watchdog groups and reverberate in home country compliance circles.

“As we have seen in this case, criminals will exploit poor business practices to launder the proceeds of their crimes,” said Austrac CEO Nicole Rose, adding that the action is a waring to the industry at large that serious AML breaches will not be tolerated.

“This has real impacts on the everyday lives of Australians and puts the community at risk by increasing opportunities for terrorists to support attacks here and overseas and enabling organized crime groups to peddle drugs to our families and friends,” she said in a statement.

The parties will jointly approach the Federal Court seeking orders to this effect, according to Australia’s Transaction Reports and Analysis Centre (Austrac). Both parties will hold a hearing to finalize the penalty in the coming months.

If agreed by the Federal Court, the action will represent the “largest ever civil penalty in Australian corporate history,” dwarfing the prior record of $45 million against TabCorp, according to the document.

The penalty puts Austrac right in the mix of record-setting global AML penalties, a title currently held by the U.S. with federal authorities handing down a roughly pure AML fine hitting nearly $2 billion against HSBC and a sanctions-charged fracas against BNP Paribas peaking at $9 billion in recent years.

Austrac highlighted several critical AML gaps in its CBA action, including:

  • ATM risk assessments and related monitoring and controls.
  • Failing to file nearly 54,000 customer transaction reports totaling more than $600 million
  • Failed to adequately monitor nearly 800,000 accounts and report suspicious transactions moving tens of millions of dollars. (via Austrac).


SocGen to pay U.S., French authorities more than $1 billion in historic global corruption, FX rate rigging settlement

French banking giant Societe Generale (SocGen) will pay $1.3 billion in a global settlement related to corruption and currency manipulation charges in the United States and France, according to authorities.

The allegations are related to bribing Gaddafi-era Libyan officials and illicitly influencing the Libor interest rate benchmark, official announced last week, a further showing that global regulators are teaming up to tackle major corruption investigations to see all the pieces of the puzzle. SocGen has also faced probes and penalties related to its sanctions and AML programs.

The bank, based in Paris, is expected to plead guilty in the U.S. while agreeing to pay French authorities nearly $300 million in what both countries are calling the first ever such resolution coordinated and negotiated by both countries simultaneously.

The actions are further evidence evincing that world powers are more closely coordinating on what large international banks are doing in their riskiest jurisdictions, following a trend of record U.S. corruption-related penalties in 2016. To read the SocGen action, click here.

In a related action, the Justice Department engaged in a rare venture into the investment management space, penalizing Maryland-based Legg Mason for actions related to a subsidiary’s connection to a Libyan broker bribing government officials. To read the Legg Mason action, click here.