The Industrial and Commercial Bank of China (ICBC) Beijing branch on April 1, 2019. ICBK must make material progress on its anti-money laundering failing.FLORENCE LO/Reuters
John Turley-Ewart is a contributing columnist for The Globe and Mail, a regulatory compliance consultant and a Canadian banking historian.
Canada recently designated Mexican drug cartels as terrorist organizations, appointed a fentanyl drug “czar,” and launched an Integrated Money Laundering Intelligence Partnership showcasing our commitment to battle financial crime. Yet, as The Globe and Mail reported last week, for more than a decade Canada has failed to convince a Beijing-controlled, nine-branch bank operating on our shores to abide by Canada’s anti-money laundering laws (AML).
Consider the extraordinary case of the Canadian arm of Industrial and Commercial Bank of China. Known in Canada as ICBK, it opened its doors for business in 2010 as a Schedule II bank and has roughly the same operational capabilities and responsibilities as a domestic bank. (Schedule II banks are Canadian-incorporated foreign bank subsidiaries.)
Since then, Canada’s Financial Transactions and Reports Analysis Centre, or FinTRAC, has examined the bank’s AML compliance program three times, in 2013, 2015, and 2019. The 2019 examination led to a FinTRAC fine of $701,250 levied in 2021, a regulatory conclusion that ICBK’s compliance program “requires urgent attention,” and a warning that FinTRAC would return, according to The Globe’s reporting.
For its part, ICBK declined to answer specific questions from The Globe, saying it is committed to compliance and to working with regulators, and that the documents reviewed by this newspaper “are out of context and contained outdated, misleading and inaccurate information.”
Regardless of what ICBK says in Canada, FinTRAC’s next examination of the bank’s Canadian business must be fulsome and leave no doubt that ICBK will follow Canadian AML laws, or face severe consequences.
In 2023, internal reports from ICBK obtained by The Globe suggest the bank has failed in its efforts to effectively remediate the problems FinTRAC identified in 2021, which threatens a repeat of this decade-long, wheel-spinning exercise when FinTRAC again examines ICBK, which is expected soon.
According to the reports, what FinTRAC’s examinations and ICBK’s own review show is a long recital of AML violations: Failing to effectively monitor high-risk clients, report suspicious transactions, follow orders from the police to produce information on clients suspected of criminal activity, and some ICBK employees coaching clients on how to structure deposits to avoid suspicion of money laundering.
This is especially concerning given that Canada remains an easy target for money laundering. Our own Criminal Intelligence Service believes criminals launder $45-billion to $113-billion annually through Canada – that equates to roughly 3 to 6 per cent of Canadian GDP.
The Industrial and Commercial Bank of China has had AML issues in the European Union. In 2020, four former branch employees in Spain were found guilty of money laundering for Chinese organized crime and received prison sentences.
And Industrial and Commercial Bank of China is currently operating its New York Branch under a 2024 Consent Order – an order by the state financial services regulator that entails a $US32.4-million fine and a stringent remediation program.
The New York State Department of Financial Services found that the New York Branch “failed to maintain an effective and compliant anti-money laundering program,” that it “failed to maintain appropriate books, accounts, and records” and that it failed to immediately report upon discovering “the occurrence of embezzlement, misapplication, larceny, forgery, fraud, dishonesty, making false entries and omission of true entries.”
In Canada, ICBK has put the examination findings of FinTRAC down to administrative errors rather than systemic failings.
ICBK must make material progress on its AML failing. And if it doesn’t, FinTRAC, working with the Office of the Superintendent of Financial Institutions – which also supervises ICBK and shares oversight responsibilities for AML rules – has tools at its disposal it should deploy.
It can, for instance, put ICBK on the same kind of remediation program that U.S. regulators are using with TD Bank’s U.S. operations to enforce compliance, namely the imposition of an external monitor at ICBK and an asset cap that keeps ICBK from expanding its Canadian arm until it is AML-compliant. If progress isn’t made, forced asset sales are the next step.