Federal regulators announced Wednesday that Arab Bank PLC of Jordan had agreed to pay $24 million for failure to comply with the Bank Secrecy Act.
The action was the third multimillion-dollar fine against a bank in 15 months for anti-laundering violations, and was sharply criticized by Arab Bank as excessive.
The Office of the Comptroller of the Currency and the Financial Crimes Enforcement Network said that among other things the bank had failed to adequately monitor the flow of funds through its New York branch to and from countries accused by the U.S. government of harboring terrorists.
"We consider this to be an extremely significant issue, otherwise we would never be talking the figure that we're talking," said William Langford, the director of Fincen's policy and regulatory division, in an interview. "They didn't have adequate controls and systems to identify potentially suspicious activity when they were clearing U.S.-dollar wire transactions through New York."
Arab Bank, which has assets of $27 billion, struck an unusually defiant tone in its press release acknowledging the penalty.
"The fine imposed by Fincen and the OCC was unreasonably high given the nature of the particular allegations, mitigating circumstances like the evolving legal standards and the penalties imposed previously on other banks," the release said. "For example, contrary to other recent instances, such as in the case of Riggs Bank, Arab Bank was never given any prior notice of wrongdoing or told to fix material problems which were identified."
Riggs National Corp. of Washington was fined $25 million in May of last year by the OCC and Fincen for failure to detect suspicious activity in its embassy accounts. Riggs, which was bought earlier this year by PNC Financial Services Group Inc., was later fined an additional $16 million by the Justice Department.
In October, Justice, Fincen, and the Federal Reserve Board fined AmSouth Bancorp. a combined $50 million for failure to detect suspicious activity. The action against the Birmingham, Ala., company continues to send ripples through the industry; bankers worry they could be hit with reputation-crippling assessments for even small infractions of the Bank Secrecy Act.
Arab Bank said its fine, too, "reflects the difficulty many banks have in complying fully with AML standards that are often confusing and constantly evolving."
The bank said that regulators are changing their standards for how much an institution is expected to know about its correspondent banks' customers. That issue is a focus of an imminent rule from the Treasury Department. Arab Bank argued its fine meant that banks have a duty to conduct the same review of their correspondent banks' customers as for their own.
A spokeswoman said the bank agreed to pay the fine so it could "put the matter behind us."
"We cooperated fully with the regulators and the investigators," she said.
In their nine-page assessment of the penalty, however, Fincen said that Arab Bank had failed to flag the names of individuals conducting transfers even after they had been named in congressional testimony or media reports as suspected terrorists.
The agencies also said that the bank did not file most of its suspicious-activity reports on terrorist financing until after the OCC started an investigation into its funds-transfer activity in July 2004.
Mr. Langford said that Arab Bank's strident response was unusual.
"In my experience in this area, I have not seen that sort of statement," he said. "I'm not going to judge the statement. It is what it is. … Respectfully, we disagree."
In February, Arab Bank consented to an OCC order that required it to cease all wire transfers and wind up banking operations other than trade financing. The agency said at the time that the bank had failed to monitor suspicious transactions.
American and Israeli family members have sued the bank and are seeking more than $1 billion, claiming that relatives of Palestinian suicide bombers received funds from terrorists through Arab Bank accounts. The Justice Department is also conducting an investigation, The Wall Street Journal reported in April.
Last month four members of Congress sponsored a bill intended to close the bank's New York branch, its only outlet in the United States.
In response, Arab Bank issued a statement accusing Rep. Anthony Weiner, D-N.Y., one of the bill's co-sponsors, of engaging in "gutter politics."
