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The Canadian subsidiary of China’s largest bank, Industrial and Commercial Bank of China (ICBC), has repeatedly failed to review high-risk clients and file suspicious transaction reports (STRs), according to findings from Canada’s financial crime watchdog, FinTRAC.
An unpublished FinTRAC report details numerous deficiencies in ICBC’s local subsidiary, ICBK, and provides examples of suspicious account activity, indicating that the bank has failed to maintain adequate financial crime compliance (FCC) controls. Despite undergoing multiple regulatory examinations, the bank has failed to address persistent anti-money laundering and countering the financing of terrorism (AML/CFT) deficiencies, correspondence between ICBK and FinTRAC reveals.
ICBC, the world’s largest bank by assets, is a Chinese state-owned financial institution headquartered in Beijing. An investigation by The Globe and Mail has uncovered troubling details about ICBK’s compliance failures and its dealings with FinTRAC.
Among the violations cited, FinTRAC identified issues with ICBK’s handling of police production orders. One instance involved an RCMP investigation into a Beijing resident suspected of drug trafficking and money laundering. Additionally, the regulator found that ICBK failed to report STRs on transactions involving large sums of money and high-risk clients. One such case involved a British Columbia business with links to a Chinese state-owned arms and explosives dealer that is under U.S. sanctions.
The report also highlighted that ICBK’s transaction-monitoring system failed to identify risks associated with correspondent banking. Given these concerns, FinTRAC has mandated that the bank undergo a fourth examination to assess its compliance with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.
In 2023, FinTRAC sent ICBK a letter requesting documentation ahead of a review, signaling further scrutiny of its operations. The letter comes after the bank was sanctioned nearly four years ago for similar violations, yet the compliance issues appear unresolved.
According to The Globe and Mail, “some ICBK branch employees advised customers on how to structure their deposits into smaller amounts over time to avoid having their transactions flagged to the regulator.” This tactic, known as structuring, is illegal and designed to evade detection by financial authorities.
FinTRAC’s third examination of ICBK resulted in a financial penalty of $701,250 in 2021 for what the regulator deemed three “administrative violations” of the AML/CFT laws. However, internal bank documents reviewed by The Globe and Mail indicate that problems with ICBK’s controls persisted for years after FinTRAC deemed the various deficiencies and related action items closed.
Repeat deficiencies suggest that the issues were never adequately addressed in the first place. Financial institutions are typically required to conduct root-cause analyses and testing to ensure proposed solutions effectively remediate identified failures. A 2023 internal ICBK report cited continued problems with the reporting of large cash transactions worth $10,000 or more. Despite mandatory reporting requirements, some ICBK branch employees allegedly advised customers on how to break down deposits into smaller increments to evade FinTRAC scrutiny.
The Canadian government has since announced plans to introduce a new criminal offence targeting individuals who deliberately structure transactions to bypass regulatory oversight.
ICBK has declined to answer specific questions related to its compliance failures. However, the bank provided a statement in response to inquiries from The Globe and Mail, asserting its commitment to regulatory compliance and financial integrity.
“We take our regulatory obligations seriously and engage directly with OSFI and FinTRAC, as required by law, to ensure full compliance with all applicable measures that promote transparency, accountability and the integrity of the financial system,” said John Hamers, ICBK’s deputy chief compliance officer, in an e-mail response.
“Any matters related to compliance reviews, examinations, or regulatory expectations are strictly confidential and are addressed through these established channels. Where public reporting requirements apply, the results of regulatory decisions are disclosed in accordance with the law.”
Hamers further argued that the documents reviewed by The Globe and Mail “are out of context and contained outdated, misleading and inaccurate information.”
Despite these assurances, FinTRAC’s continued scrutiny of ICBK suggests that regulators remain concerned about the bank’s ongoing compliance deficiencies. With a fourth regulatory examination on the horizon, the pressure is mounting on the Canadian subsidiary of the world’s largest bank to fully address its financial crime compliance failures.
By fLEXI tEAM