Federal, New York Authorities Fine South Korean Bank Used for Iran Payments
Federal and New York authorities fined a South Korean bank over long-running gaps in its defenses against money laundering, after the lender’s Manhattan branch was used to launder cash for Iran.
The state-backed Industrial Bank of Korea must pay a combined $86 million for lapses dating back to 2010, which centered on failing to install and maintain an adequate transaction-monitoring system. The New York State Department of Financial Services is fining the bank $35 million. Separately, federal investigators and the New York State Attorney General’s office have required the bank to pay $51 million. A spokesman for the bank said he had no immediate comment.
Starting in 2011, Kenneth Zong, an Alaskan, conducted more than $1 billion of illegal transactions on behalf of Tehran using his accounts with the bank, according to law-enforcement officials. Mr. Zong convinced bank officials that the Iranian government owed him cash for construction materials he had sold to it, according to the Justice Department. Mr. Zong fabricated invoices, contracts, and bills of lading to deceive bankers, prosecutors have said.
The bank then released cash held in one of its Korean won-denominated accounts to Mr. Zong. The Industrial Bank was one of only two in South Korea that Seoul officials had designated in 2010 to conduct permissible trade with Tehran while also complying with U.S. sanctions. Relevant Industrial Bank accounts have been frozen since last year, as the U.S. strengthened its sanctions regime on Tehran, the bank spokesman said.
Mr. Zong then converted the cash into U.S. dollars through the bank, before wiring the money to Iranian officials world-wide. Tehran awarded Mr. Zong with a fee estimated at up to $17 million for his services, U.S. prosecutors have said.
Mr. Zong has been indicted on 47 counts of violating Iran-related sanctions in the U.S. He was in South Korean custody as of late 2018, after local courts convicted him of tax law violations, related to the transactions, the Justice Department has said. He hasn’t been permitted to leave South Korea following the convictions, according to the New York Attorney General’s office on Monday.
Mr. Zong’s son, Mitchell Zong, was also indicted on a charge of conspiring to commit money laundering with his father, and was sentenced to 30 months in federal prison and fined $10,000 in December 2018. Mitchell Zong laundered about $980,000 of “Iranian derived funds,” according to the Justice Department. The Zongs and their legal representatives couldn’t be immediately reached.
New York officials said Industrial Bank had repeatedly failed to set up sufficient compliance systems despite several warnings during and after the Zong family’s actions, which lasted until at least 2014. It was only in 2019 that officials deemed its compliance program adequate.
By Andrew Jeong, 20 April 2020, Published on The Wall Street Journal