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US regulators fined the New York subsidiary of Israel Discount Bank Ltd., the country's third- largest lender, $12 million for violating federal and state laws designed to thwart money laundering.
Israel Discount Bank of New York failed to set up an adequate program to identify and report money laundering, the federal and state regulators said. A "substantial" part of $35.4 billion in third-party wire transfers during the year ended March 2005 showed traits common to laundering operations, the complaint said.
"The size of the settlement should serve as a reminder to all financial institutions that detecting and reporting" money-laundering violations is needed to prevent fraud and abuse, said Diana Taylor, superintendent of the New York State Banking Department. The other regulators were the Federal Deposit Insurance Corp. and the US Treasury Department's Financial Crimes Enforcement Network.
The fine is in addition to $8.5m. the bank already agreed to pay the New York District Attorney's Office in December to settle a case involving $2.2b. sent from Brazil. Federal authorities have brought seven money-laundering cases this year, the most since the US began cracking down on illicit financing after the September 2001 terrorist attacks.
The bank agreed to the settlement without admitting or denying the allegations, the release said. A woman answering the telephone at Israel Discount Bank of New York said the lender wouldn't comment on the fine. She declined to be identified.
Israel Discount Bank of New York processed about 181,000 third-party wire transfers between March 2004 and March 2005, the release said. Federal law requires banks to report any cash transaction above $10,000 and to file a report on any transaction that may be linked to criminal activity.
The 2001 terrorist attack "was a wake-up call for depository institutions, and for this bank not to have taken that message seriously I think reflects poorly on management of the organization," said Gilbert Schwartz, a partner at Schwartz & Ballen LLP, a Washington-based firm specializing in financial services.
Investor Matthew Bronfman, a member of the family that founded liquor maker Seagram Co., led a group that bought a controlling stake in the bank after delays caused by the money-laundering probe. The investors bought a 26 percent stake from the Israeli government for $280m. in February, with an option to acquire another 25% over three years. The rest of the bank is traded on the Tel Aviv Stock Exchange.
The Treasury Department has fined 36 institutions for anti- money laundering violations since April 1999.
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