JPMorgan Chase & Co. dropped Al-Rajhi Bank, the world's largest Shariah-compliant lender, as a correspondent banking client amid a push to improve risk controls, said two people with direct knowledge of the move.
The relationship with Saudi Arabia's biggest publicly traded bank ended Dec. 31 because JPMorgan couldn't get enough information on where payments in dollar-clearing services for Al-Rajhi had originated, said one of the people, who requested anonymity because the decision wasn't public.
JPMorgan said it cut off the service to about 500 foreign lenders last year as regulators press the world's biggest banks to verify that transactions are used for legitimate business. The crackdown seeks to halt funds tied to money laundering, terrorism and countries covered by economic sanctions. Correspondent accounts allow lenders to take deposits or make payments on behalf of foreign institutions.
The two banks haven't been cited by U.S. regulators for involvement in illegal money transfers. Tasha Pelio, a JPMorgan spokeswoman, declined to comment on clients of the company, which is based in New York and ranks as the nation's largest lender by assets. A spokesman for Al-Rajhi didn't respond to inquiries, and there was no response to messages sent to the firm's Riyadh headquarters.
Al-Rajhi, founded in 1957 by billionaire Sulaiman Al Rajhi, had 9,000 employees and about 500 branches in Saudi Arabia, Jordan, Malaysia and Kuwait, according to a January 2012 media kit. Members of the Al Rajhi family, one of Saudi Arabia's richest, are the biggest shareholders of the company, which had $74.6 billion of assets on Dec. 31, according to data compiled by Bloomberg. Shariah-compliant financial firms provide products adhering to Islam's ban on interest.
The U.S. Office of the Comptroller of the Currency ordered JPMorgan to improve anti-money laundering efforts last year, finding that its controls tied to the Bank Secrecy Act were inadequate. The firm failed to find out enough about banking customers and identify suspicious activity, according to the January 2013 consent order. The Bank Secrecy Act requires firms to report all large cash deposits to help prevent crimes such as drug-trafficking and terrorist financing.
JPMorgan's relations with its regulators have been marred by legal disputes that contributed to more than $23 billion in settlements last year, including deals to resolve probes into the sale of mortgage bonds.
Correspondent banking remains a core business even after cutting some clients, JPMorgan has said. The department is within the firm's treasury services division, whose revenue fell 2.7 percent to $41.1 billion last year.
BNP Paribas SA, France's largest bank, reported a surprise drop in profit last week after setting aside $1.1 billion for U.S. investigations into dollar payments tied to countries, people and entities subject to federal sanctions. The probe involves dealings with Iran, Sudan and Cuba, according to a person with knowledge of the matter.
HSBC Holdings Plc, Europe's biggest bank, paid $1.9 billion last year to end U.S. claims of shoddy anti-money-laundering controls. The firm was accused of enabling Latin American drug cartels to launder money by neglecting to monitor more than $670 billion in wire transfers and more than $9.4 billion of dollar purchases from a Mexican subsidiary.
Last year, the Federal Reserve said Citigroup Inc., the third-biggest U.S. bank, lacked effective controls at two subsidiaries, Citibank NA and Banamex USA. The firm failed to conduct proper due diligence on customers and was too slow to file so-called suspicious activity reports, the OCC said in 2012. Citigroup said at the time that it had taken significant steps to strengthen money-laundering controls and address regulators' concerns.