Photographer: Susana Gonzalez/Bloomberg

Bank Linked to ‘Panama Papers’ Firm Faces Probe in Taiwan

Updated on
  • U.S regulator said bank compliance program was ‘hollow shell’
  • Mega Financial shares plunge after unit fined by regulator

Taiwan’s government will probe a bank that was fined $180 million for violating anti-money laundering laws by a U.S. regulator, which described its compliance program as a “hollow shell.”

Officials from Taiwan’s financial supervisor, a prosecutors’ office and the justice ministry will look at whether any crime has been committed in the case involving Mega International Commercial Bank Co., Deputy Minister of Justice Chen Ming-Tang said by phone on Monday.

Shares of Mega Financial Holding Co., the bank’s parent, closed 6.3 percent lower in Taipei on Monday.

The bank will cooperate with the probe, according to Chen Sung-hsing, executive vice president of state-backed Mega Financial. Chen said the bank isn’t involved in money laundering and is committed to enhancing its compliance system. In a statement to the stock exchange on Friday, Mega Financial said that the U.S. fine was “bearable” but would hurt earnings this year.

Suspicious transactions flowed between the bank’s New York and Panama branches and a substantial number of customer “entities” were apparently formed by Mossack Fonseca, the Panama law firm at the center of the “Panama Papers” scandal, the Department of Financial Services in New York said Friday.

Leaked Documents

The disclosure this year of documents leaked from Mossack Fonseca drew attention to how the world’s rich can use offshore shell companies to hide their money and triggered political fallout including the resignation of Icelandic Prime Minister Sigmundur David Gunnlaugsson. The millions of documents led to articles alleging that secret companies were used by money launderers, art smugglers, international criminals and repressive governments like Syria’s.

The Ministry of Finance was to meet with executives of eight government-backed banks on Monday to demand improvements in their internal audits and overseas compliance, the Taipei-based Economic Daily News reported, without saying where it got information.

The head office of Mega International Commercial Bank was “indifferent toward risks associated with transactions involving Panama, recognized as a high-risk jurisdiction for money laundering,” the Department of Financial Services said.

Independent Monitor

As part of a consent order agreed by the regulator and the bank, an independent monitor will be appointed to “address serious deficiencies within the bank’s compliance program and implement effective anti-money laundering controls,” the regulator said.

The bank was described by the Department of Financial Services as a “major international financial institution,” with about $103 billion in assets, including $9 billion at its New York branch. 

The regulator’s examination of the lender’s New York branch took place in the first quarter of 2015 and was “extremely troubling,” according to the consent order. 

Mossack Fonseca has said that its work has been misrepresented; that it conducts due diligence on its clients on an ongoing basis; that it denies services to clients who don’t comply with information requests or have been sanctioned by authorities; and that it cooperates with authorities in investigations.