BOC’s USA head sees cautionary tale in AgBank fine

Bloomberg

Bank of China’s (BOC) top official in New York said he’s boosting compliance efforts amid a US crackdown on illicit money moves that already led to a $215 million penalty against Agricultural Bank of China Ltd.
“From the perspective of regulation, the U.S. is the toughest,” Xu Chen, chief executive officer and president of Bank of China’s New York branch, said in an interview on Sunday. In September, his unit was designated the first yuan-clearing bank in the U.S. by the People’s Bank of China. “We have the intention to improve our compliance level as soon as possible, especially this time after the Agricultural Bank of China was fined,” he said.
State-controlled Agricultural Bank of China, the nation’s third-largest lender, was ordered to install an independent monitor to oversee compliance controls, New York State’s Department of Financial Services said on Friday in announcing the penalty. The firm tried to obscure dollar transactions by clients and silenced a compliance officer who raised alarms about it, the regulator said.
New York and federal officials have aggressively pursued foreign banks over sanctions violations and anti-money laundering controls, but it’s unusual for a U.S. entity to levy such a penalty against a China-controlled lender. Xu called the fine “a very important reminder to other Chinese banks operating here” and “a good case for us to learn insights from.”

OCC’s Concerns
Bank of China pledged in December to strengthen money-laundering controls after the U.S. Office of the Comptroller of the Currency cited deficiencies at the New York branch. In an agreement signed by Xu, the lender said it will fix policies for finding and reporting suspicious behavior, keep better track of currency transactions and limit its vulnerability to financial crimes. No fine was issued.
Last year, the Federal Reserve also ordered state-owned China Construction Bank Corp. to tighten money-laundering controls in New York.
“Chinese banks all highlight the importance of compliance here,” Xu said, noting that Chinese financial institutions operating in the U.S. need time to strengthen compliance efforts, and often lack experience and talent in the area. “Even our Bank of China needs to improve ourselves further.”
The bank plans to meet with the OCC regularly, improve its information technology, and hire more compliance staff, Xu said. The company is trying to integrate requirements on yuan and dollar transactions in both the U.S. and China.
Bank of China’s global reach was built over a century, from its one-time status as the country’s central bank to its role managing China’s foreign-exchange operations. Still majority-owned by the government, it listed as a public company a decade ago and agreed in 2014 to buy an office tower near Manhattan’s Bryant Park, reflecting the expansion of its U.S. operations, Xu said.
China is seeking to boost international use of its currency amid a broader push to improve its financial system and open its capital markets. The government has named yuan-clearing banks in at least 20 overseas cities and countries. Among the nation’s lenders, Bank of China has received the most mandates, with 11 including Hong Kong, Macau, Sydney, Paris and Taipei.

The offshore yuan declined 0.3 percent in New York on Monday.
While China usually designates one Chinese lender to clear all yuan trades in each country outside its borders, the U.S. will have two banks. The second must be American, according to Xu. That would exclude banks such as London-based HSBC Holdings Plc from the running. Commercial banking capability is also an important consideration, he said. That would rule out investment banks like Morgan Stanley. U.S. banks facing regulatory scrutiny, such as Wells Fargo & Co., may also face difficulties in becoming the second clearing bank.
Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc. are among firms vying for the designation, he said.
Spokesmen for the three banks declined to comment or didn’t immediately respond to messages. Michael Bloomberg, founder of Bloomberg News parent Bloomberg LP, chairs a working group on U.S. yuan trading and clearing.
‘Not Afraid’
A clearing bank may benefit from direct access to China’s interbank market, an important cost-saver, Xu said. And while margins in the clearing business are low, the bank sees growing profit in facilitating trading in the currency, he said. Bank of China is working with the PBOC on a yuan-trading agreement by the end of this year.
The bank has historically focused on providing services to companies and financial institutions, rather than retail banking business. That strategy was reinforced after Wells Fargo’s scandal this year, according to Xu. The San Francisco-based bank paid $185 million in fines in September for allegedly opening legions of bogus accounts for customers, and has since been the subject of congressional hearings and scrutiny by additional U.S. agencies.
Despite the regulatory environment, Xu said he remains optimistic.
“We are focused on the market to provide cross-border financial investment and trade between U.S. and China — a huge potential market,” Xu said. “We are not afraid of the future.”