Op risk data: Chinese regulators levy record fines

Also: top losses feature two frauds at Russia banks and AML provisions at Nordea. Data by ORX News

China map

A Russian bank is responsible for April’s largest publicly reported operational risk loss. Suspected fraud at Yugra Bank has resulted in the arrest of majority shareholder, Alexey Khotin, according to the Investigative Committee of Russia. Authorities are probing the embezzlement of 7.5 billion roubles ($117 million).

Yugra Bank was declared bankrupt in September 2018 after its licence was revoked by the Central Bank of Russia the previous year. Yugra Bank’s collapse was one of the most expensive in Russia’s history at the time, with payouts to depositors totalling 173 billion roubles ($2.7 billion) under the country’s deposit insurance scheme.

In second place, Nordea provisioned €95 million ($106.1 million) in its first-quarter results for an expected fine in Denmark relating to historical failures in the bank’s anti-money laundering (AML) processes and procedures. In June 2015, the Danish Financial Supervisory Authority began investigating Nordea’s compliance with AML regulations. The case was subsequently handed over to the country’s official prosecutor for further investigation. This follows recent revelations of possible AML violations at a number of European banks, particularly those based in Scandinavia.

Nordea claims to have invested €700 million between 2016 and 2018 in strengthening its risk and compliance activities in its first and second lines of defence.

Wells Fargo experienced April’s third largest loss. The owner of a US farming company defrauded the bank of $68 million by obtaining a loan based on false information and documents. Michael Stamp misrepresented the amount of land he farmed and the value of his assets. In 2012, Stamp’s company filed for Chapter 11 bankruptcy protection, with subsequent investigations unearthing the fraud. Three other individuals pleaded guilty to involvement in the case, including Stamp’s wife, according to local reports.

The fourth largest loss is another embezzlement at a Russian bank. The acting chairman of Bank Eurocommerce stole 3.3 billion roubles ($51.5 million) by fraudulently selling federal loan bonds and funds belonging to the firm, according to the general prosecutor’s office in Russia. The chairman did this after learning that the bank’s licence would be revoked in October 2015. The individual was charged with two counts of misappropriation or embezzlement in April, and investigations are ongoing.

Finally, a commercial loan fraud scheme involving three bank employees cost a state-owned bank in Bangladesh, Agrani Bank, 2.6 billion takas ($30.4 million). Marrine Vegetable Oils, a subsidiary of industrial company Nurjahan Group, obtained a loan from Agrani for the import of palm oil. The company then submitted forged import documents to release the goods from the port and laundered the resulting profits. Bangladesh’s Anti-Corruption Commission is investigating the fraud, according to local reports.

Spotlight: Zurich’s tax evasion fine

Two Zurich Insurance subsidiaries, based in Switzerland and the Isle of Man, have agreed to pay $5.1 million to the United States over insurance policies and accounts used by US customers to evade tax.

US taxpayers used the policies and accounts issued by Zurich to conceal undeclared assets from the Internal Revenue Service and subsequently evade taxes and reporting requirements. Some of these products were unit-linked insurance policies which allowed customers to access potentially higher returns, while for other products the base death benefit was nearly equivalent to the cost of the policy.

Zurich issued 420 of the policies between January 2008 and June 2014, with an aggregate value of $102 million. Some customers fully funded their policies using transfers from offshore bank accounts.

According to the US Department of Justice, Zurich failed to ensure that policyholders complied with tax laws. The company also “knew or should have known” that it was helping taxpayers to conceal assets, the DoJ stated.

Zurich self-disclosed to the DoJ in July 2015 following a global review of its US offshore life insurance, savings and pension businesses. This review followed the introduction of the DoJ’s Swiss Bank Program in 2013.

In addition to the $5.1 million penalty, Zurich is required to implement controls to guard against misconduct involving undeclared US accounts as part of a non-prosecution agreement.

In Focus: China gets tough on financial supervision

China’s financial regulators issued fines totalling $616.5 million in 2018, a near doubling of penalties compared to the previous year. The figure includes publicly reported fines over $1 million.

The China Banking and Insurance Regulatory Commission said that regulators in the country levied a record 3,800 penalties in 2018. The CBIRC was officially launched in April 2018 as a result of merging China’s banking and insurance watchdogs. The merger aimed to consolidate and strengthen financial supervision in the country, and follows previous emphasis placed by Xi Jinping, general secretary of the Communist Party, on controlling risks associated with China’s financial industry. It also gave more authority to the country’s central bank, which is now responsible for drafting key regulations and prudential oversight in banking and insurance.

Additionally, Caixin Global reported that the China Securities Regulatory Commission imposed a record 310 penalties last year totalling $1.54 billion. This included 87 actions on insider trading; the figure is not limited to publicly reported fines over $1 million.

The fines exceed the previous record set in 2017, which may indicate a shift to a more aggressive regulatory approach and heightened focus on disclosure and trading violations. According to ORX News data, instances of fines over $1 million stood at $337.1 million in 2017.

Tough regulatory action in China looks set to continue. In April 2019, the CSRC fined Goldman Sachs and its subsidiary Gao Hua Securities 150 million yuan ($22.3 million) for internal control breaches related to proprietary trading of shares and stock index futures.

Although this is a huge increase for China, it perhaps signals that the country’s regulators are making efforts to align with their foreign counterparts. For example, the frequency and severity of large fines issued in Hong Kong, which has a separate financial regulator, has averaged six and $56.1 million respectively since 2009, though there have been significant variations year-on-year.

The frequency and severity of penalties in the wider Asia-Pacific region has averaged 22 and $802.7 million respectively.

Editing by Alex Krohn

All information included in this report and held in ORX News comes from public sources only. It does not include any information from other services run by ORX and we have not confirmed any of the information shown with any member of ORX.

While ORX endeavours to provide accurate, complete and up-to-date information, ORX makes no representation as to the accuracy, reliability or completeness of this information.

  • LinkedIn  
  • Save this article
  • Print this page  

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here: