WASHINGTON – The Federal Reserve has accused the Bank of New York of failing to tighten its controls against money laundering as it had promised in 2000 in a case that resulted in its paying $38 million in criminal penalties.
The Bank of New York, one of the nation's oldest, was not fined in a new agreement with the Fed and the New York State Banking Department, which was dated Friday and made public on Monday. The bank was given 60 days this time to review its compliance with regulations, submit a plan for strengthening its controls against money laundering and take other steps.
In a statement Monday, the bank said it had already completed some of the mandated actions and that others were under way. "We plan to fulfill the expectations of the agreement in a timely manner," said Thomas Renyi, the bank's chairman and chief executive.
Also Monday, the Bank of New York agreed to pay $250,000 to settle a civil lawsuit by the Securities and Exchange Commission accusing the bank of failing, as a transfer agent for stocks and bonds of various companies, "to exercise reasonable care" to locate owners of the securities who were deemed "lost."
The Bank of New York neither admitted nor denied the allegations in the SEC's suit filed in federal court in Manhattan, where the bank is based, but did agree to refrain from future violations of securities laws. The bank also agreed to repay the affected holders of the stocks and bonds. Between January 1998 and September 2004, some $11.5 million in assets belonging to 14,159 securities holders were turned over to states as unclaimed property as a result of the bank's failure to find them, the SEC said.
The Fed formally sanctioned the Bank of New York in February 2000 for allegedly lax control and risk-management procedures in its operations involving international banking, fund transfers and stock listings for foreign companies. In an accord with the regulators at the time, the bank promised to correct the alleged deficiencies by tightening its anti-money-laundering controls and its screening of customers in those operations.
The central bank terminated the sanction in June 2002 because, it said, the bank had complied with the agreement.
But the Fed disclosed in the new agreement that reviews conducted last year found "further deficiencies."
The Bank of New York, founded with the aid of Alexander Hamilton in 1784 and one of the nation's largest trust banks, was rocked by revelations in late 1999 that it had served as a conduit for $7 billion in Russian money — some of it believed to be from criminal activities. The case was thought at the time to be the largest money-laundering scandal in U.S. history.
Former Bank of New York executive Lucy Edwards and her husband, Peter Berlin, pleaded guilty in February 2000 to federal money-laundering charges. They admitted helping Russian bankers wash billions of dollars through accounts at the bank to avoid Russian taxes and cover up the money's connection to crimes — including money paid as ransom for a Russian kidnapping victim.
Last November, the bank agreed to pay $38 million in penalties and undertake reforms to end a long-running criminal investigation by federal authorities into fraud and money laundering. The bank admitted criminal conduct, and agreed to forfeit $26 million to the government and $12 million to victims in exchange for avoiding criminal prosecution.
As a trust bank, the Bank of New York makes most of its money in securities processing, treasury management and investment management.