Intesa Sanpaolo Fined $235 Million by New York Regulator -- Update

By Erica Orden 

New York's top banking regulator on Thursday fined Italian bank Intesa Sanpaolo SpA and its New York branch $235 million for violations of the state's laws prohibiting money laundering and bank secrecy, including the masking of transactions involving Iran, a sanctioned entity.

The bank "specifically trained certain employees" to obscure money-processing activities involving Iran so those transactions couldn't be properly flagged, according to the state Department of Financial Services.

Milan-based Intesa Sanpaolo and its New York branch had "severe compliance failures" in its transaction-monitoring system and deliberately concealed information from bank examiners, DFS said.

In a press release issued Thursday, Intesa Sanpaolo noted the fine "in relation to a civil penalty imposed on the Bank following a public supervisory action related to certain weaknesses and deficiencies in the anti-money-laundering controls, policies, and procedures of the Bank's New York branch." A spokeswoman for the bank didn't respond to a request for further comment.

"There is little doubt that the negligent conduct of this bank is the type of conduct that can fuel international criminal activity, thereby seriously compromising the security of the international financial system," DFS Superintendent Maria Vullo said.

According to a consent order released Thursday, the bank had a number of flaws in its system designed to detect transactions that should be taken under review, including an algorithm intended to search for county names that would create an alert only if the official county name, and not the commonly-used shortened version, had appeared. "Russian Federation" would get flagged, for example, but not "Russia."

If that flaw hadn't existed, at least $9 billion worth of additional transactions would have been subject to review, according to an independent consultant, the consent order said.

The consent order also said the bank cleared thousands of transactions through the New York branch that had signs of suspicious activity with respect to shell companies.

In 2006, for example, its Luxembourg subsidiary processed a transaction through the New York branch for a customer registered at a shell company address in Panama. The address is associated with Mossack Fonseca & Co., the law firm at the center of the "Panama Papers" scandal.

In regard to Iranian transactions, the bank used "a special process" to clear thousands of Iranian transactions between 2002 and 2006, worth more than $11 billion, through its New York branch during a period when Iran was subject to economic sanctions. The process omitted details in payment messages sent to New York that could have caused the transactions to be flagged for scrutiny.

The improper handling of Iranian transactions by New York-regulated banks has been a focus of DFS since early in its formation in 2011.

In 2012, the agency reached a $340 million settlement with the U.K.'s Standard Chartered PLC for handling more than $250 billion of restricted transactions for Iranian customers.

And in June 2014, the agency also helped pressure BNP Paribas SA of France to sign an unprecedented combined $8.9 billion settlement with U.S. authorities for violations of U.S. economic sanctions against Sudan, Iran and other countries.

Write to Erica Orden at [e-mail]

(END) Dow Jones Newswires

December 15, 2016 17:35 ET (22:35 GMT)

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