BEIJING, Nov 7 (Reuters) - Last week's $215 million fine for Agricultural Bank of China Ltd (AgBank), the third big Chinese bank disciplined by U.S. regulators in 16 months, shows Chinese lenders still falling short in their compliance duties.
As Chinese companies have expanded overseas, the country's lenders, led by its big state-owned banks, have followed their customers, pushing their offshore loans to nearly $1 trillion at the end of 2015, up from more than $600 billion in 2010, according to the International Monetary Fund.
That has exposed them to increasing scrutiny by overseas regulators trying to root out weaknesses that allow organised criminals and terrorist organisations to launder money.
In a consent order published on Friday, New York's Department of Financial Services (DFS) said AgBank, China's third-biggest lender, violated anti-money-laundering (AML) laws by deliberately obscuring potentially suspicious transactions and silencing its compliance officer.
It is not the first Chinese financial institution to find itself in the crosshairs of U.S. regulators.
Bank of China Ltd agreed with the U.S. Treasury Department in December to improve its AML procedures, and a few months earlier the U.S. Federal Reserve issued an enforcement action against China Construction Bank Corp for similar issues.
"Chinese banks don't understand that by having a footprint in the United States they have to comply with U.S. regulations," said Philippa Allen, CEO of Hong Kong compliance consultancy ComplianceAsia.
"Even though they are often operating globally, these banks still tend to think of themselves as being Chinese, subject to Chinese rules."
They have also been keeping prosecutors busy in Europe.
Six Industrial and Commercial Bank of China bankers were arrested in Spain in February, suspected of facilitating money laundering and fraud.
The bank has said it implemented AML regulations and operated within the law.
In Italy, prosecutors are preparing to bring Bank of China and its officials to preliminary hearings after a money-laundering investigation involving billions of euros allegedly smuggled back into China.
BoC has denied any wrongdoing.
Global Financial Integrity, a Washington-based watchdog, estimated that from 2004 to 2013 China was the world's biggest source of illicit outflows, accounting for about 28 percent of the $4.885 trillion in illicit funds moving from the 10 biggest source economies.
"Anti-money laundering and know-your-customer oversight at Chinese banks is not taken as seriously as it should be," said Fraser Howie, an independent China market analyst and co-author of the book "Red Capitalism".
"The nature of Chinese business is often opaque in the best of times, so you have opaque businesses dealing with poorly supervised banks," Howie said.
Earlier this year China's own banking regulator warned its commercial banks to strengthen risk controls in their overseas branches, including making adequate checks of borrowers.
In Friday's consent order, AgBank has agreed to install an independent monitor to review compliance for at least two years, signalling it is unlikely to open more branches or undertake new business in the United States during that time.
The DFS "found credible evidence of wrongdoing" and "serious and persistent compliance failures" during its examinations in 2014, 2015 and 2016, the order said.
AgBank declined to comment.
In September, the U.S. Federal Reserve also ordered AgBank's New York branch to improve its AML safeguards, giving the lender 60 days to draw up a comprehensive plan.
AgBank, which also operates branches in Frankfurt, Sydney, Tokyo and Seoul, obtained its New York licence in 2012 and holds about $9.5 billion in assets at the branch, according to the consent order. It is AgBank's only U.S. branch.
The branch's core business remained helping mainland clients that are "going global", Zhang Jian, head of the branch's business department, told China Business News in August.
Among the findings in the consent order, AgBank failed to investigate unusually large round-number dollar transfers between Chinese trading companies and Russian lumber companies, payments from Yemen to Chinese firms in Zhejiang province, and from companies in the United Arab Emirates.
AgBank also failed to adequately monitor transactions remitted by a Turkish Bank customer for its Afghan Bank client, which was known by the U.S. Treasury Department for its links to a network associated with narcotics traffickers and illicit cash flows.
Invoices obtained by compliance personnel to investigate potentially suspicious transactions involving China and Russia appeared to be counterfeit or falsified, the order said.
Other documents suggested U.S. dollar trade with Iranian counterparties, including a sanctioned Iranian party.
Many dollar-denominated transactions using the SWIFT wire messaging system contained numeric codes that prevented AgBank compliance officials and regulators from properly screening the transactions or parties involved.
When the chief compliance officer (CCO) shared those concerns with bank officials and the Fed, the bank moved "to improperly curtail the CCO's independence", the consent order said.
The branch CCO at the time, Natasha Taft, filed an $8 million whistleblower and gender discrimination suit that was settled in September. Taft did not return requests for comment. (Reporting By Matthew Miller in BEIJING; Additional reporting by Michelle Price in HONG KONG and Engen Tham in SHANGHAI; Editing by Will Waterman)