[FinCEN Files] ④Behind IBK’s $86 million penalties lurks money-laundering network

Sep. 22, 2020, 08:00 AM.

In April 2020, the Industrial Bank of Korea (IBK) signed a document titled “Industrial Bank of Korea-Deferred Prosecution Agreement” as the South Korean state-owned bank agreed to pay a substantial sum of penalties.
The backbone of this agreement was for IBK to pay USD 51 million (KRW 66 billion) to the United States and a separate USD 35 million (KRW 45 billion) penalty to the New York State Department of Financial Services. 
It is not the first time for a South Korean bank to pay penalties for violating anti-money laundering laws. For instance, Korea Exchange Bank has paid KRW 1 billion, and NH Nonghyup paid KRW 10 billion. Still, a penalty in the range of KRW 100 billion had been unprecedented until the IBK case.
What has IBK done wrong? The story goes back nearly a decade when IBK made an arrangement with the Central Bank of Iran to open an escrow account where Iran’s oil sales to South Korea could be held in Korean won and used to pay for the country’s trade with Korea. 
▲ Kenneth Zong founded a company called Anchore in Seoul, South Korea. The company directors listed on Anchore’s corporate registry have committed tax evasion and money-laundering. 
In 2009, a Korean-American named Kenneth Zong registered a company called Anchore in Korea. The company’s office was set up at a dual purpose commercial and residential building in an affluent neighborhood in Songpa-gu, Seoul. Apparently, it was an intermediary trading company.
Out of Anchore’s five directors including Zong himself, three were foreigners. From the outside, there was nothing unusual about Anchore as a legal entity as it had as an office, registered directors, and capitals. But in reality, Anchore was nothing more than a shell company. 
Zong opened an IBK bank account for Anchore at a branch nearby his office.   
In 2011, he began to forge documents that show Anchore’s contract to ship construction material between Dubai and Iran as an intermediary. This way, Zong was able to launder KRW 1.1 trillion equivalent to USD 1 billion on behalf of Iran. He also benefited from the commission of nearly KRW 170 million. 
▲ Kenneth Zong’s Anchore was an intermediary registered in Korea. Zong’s partners formed companies in Dubai and Iran for money-laundering in disguise of trade.   
In order to fabricate these trade deals, Zong found a company in Korea while his co-conspirators formed one in Dubai and another in Iran. Zong created a false invoice to show Anchore’s shipping of construction materials from Dubai to Iran. The fictitious documents were submitted to South Korea’s central bank and KOSTI, the Korean government’s export control authority.
Anchore received payments out of Iran’s Korean won account kept at IBK. Zong then wire transferred the money to launder it through multiple banks in various countries such as the U.S., Canada, France and Germany until it finally reached Dubai.
In the scheme, actual export and import of construction material never took place. Iranian fund kept at IBK was laundered as a payment for proper trade deals. Zong reaped a huge profit for taking the rist. IBK is also believed to have benefited from the fees they charge for currency exchange and wire transfer which is at least 3 percent of the total transaction amount. 
However, the head office of IBK in Seoul and the Korean financial watchdogs failed to filter out the suspicious transactions by this new company with little business performance as it had engaged in foreign exchange transactions worth as much as 1 trillion won in such a short period of time.
▲A timeline of the key events from February 2011 when fake transactions began to January 2013 when Zong was prosecuted in Korea
After having continued for six months, the scheme was finally detected by a compliance officer at IBK New York in July 2011. In order for the money to be converted into dollars and sent overseas it had to go through the corresponding bank in the U.S. The officer notified the IBK head office in Seoul first.
A month later IBK filed a suspicious activity report (SAR) to the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN).
South Korean prosecutors' office launched an investigation over Zong’s case and arrested him in September 2012 on charges of violating foreign currency exchange law and custom law. Bankers at IBK were also investigated. According to the prosecutor’s conclusion, IBK allowed the transactions at issue because the bank had been deceived by Zong’s fraudulent documents.
In the email seized by the US investigative authorities, Zong allegedly provided kickback to high-ranking bankers at IBK. But it is unclear how thoroughly this particular part had been scrutinized by Korean prosecutors. So far, no one at IBK has been held accountable.
The Financial Supervisory Service (FSS) stepped in and launched a probe in 2013. But the South Korean financial watchdog concluded that IBK found out about the transaction late and it failed to file an internal report. IBK insists since they have already been investigated by FSS, they see no need for an independent probe over the case.
▲ After investigation in February 2013, FSS only pointed out how IBK failed to report to the bank’s president immediately.  
However, it is not plausible that IBK and the financial authorities had not been aware of Zong’s transactions with the money-laundering network until an officer at IBK New York found out about it. 
Zong’s partners in the scheme were high-profile figures in the world money-laundering who could be found through Internet searching.
The Korea Center for Investigative Journalism(KCIJ)-Newstapa examined Anchore’s corporate registry documents. All of the three foreigners listed as the company directors were associated with financial crimes such as tax evasion and money-laundering schemes. 
One of the directors was Sencer Sevket, who has been wanted by U.S. authorities for alleged investment fraud. Sevket has come up in the news as a key figure behind a scheme to open a mutual fund in tax haven. 
Another director was Harald Torbjorn Gabriel Jakob Kinde whose name can be found listed as a director at over 40 shell companies according to information from Company House. It shows he is a typical proxy. A British national Anthony Charles Eric Yeoman Lombard Knight was also found listed as a director at dozens of companies, suggesting there is a high chance for him to be a proxy, as well.
As a result of investigation, the Dubai firm that had been reported to supply construction material was confirmed to be a shell company. When searched, only its P.O. Box address came up. Based on the US investigation records, Houshang Hosseinpour, who was in charge of running the company, was also suspicious.
Hosseinpour’s name is found in the data of the Panama Papers- a cross-border investigation project in which Newstapa collaborated with the International Consortium of Investigative Journalists (ICIJ) in 2016. Housseinpour formed several shell companies in the British Virgin Islands with Iranian-American tycoon Farhad Azima. Hosseinpour’s address shown on these company documents matched with Sorinet Commercial Trust Bank, which is a company founded in Dubai by Iranian conglomerate Sorinet Group.
▲ Houshang Hosseinpour(left) was one of Zong’s co-conspirators in the money-laundering scheme involving IBK. ICIJ’s Panama Papers database confirms that he has controlled a shell company with Iranian-American magnate Farhad Azima(right) in the British Virgin Islands. 
A simple research would hints Kenneth Zong’s link to these high profile figures. Moreover, IBK and financial authorities failed to filter out Anchore’s fake invoices and photos of construction material downloaded and printed.
Consequently, IBK ended up paying USD 86 million penalty to the U.S. authorities. The state-owned bank suffered damage in its international credibility for being exploited by a transnational money-laundering network. Yet, no one at IBK was held accountable.
ReportingYongjin Kim, Wooram Hong, Myungju Lee
Video ReportingHyoung-seok Choi, Hyeong-min Jeong, Jun-sik Oh
Video EditingJi-sung Jung
CGDong-woo Jung
Design Do-hyeon Lee