—Royal Bank of Scotland Group PLC was hit with a cease-and-desist order by the U.S. Federal Reserve Board Wednesday over violations of federal money-laundering laws, the latest effort by U.S. regulators to crack down on foreign banks' compliance with U.S. law.
The order follows similar moves aimed at banks such as HSBC Holdings PLC and Barclays PLC. At RBS, the order wasn't a response to a specific incident, but rather is intended to beef up defenses against customers attempting to launder money or send funds to countries under sanction by the U.S.
It requires RBS to improve oversight of its U.S. operations. Specifically, it requires the bank's operations in the U.S. and the Netherlands to improve risk-management practices and compliance with laws relating to money laundering, bank secrecy and U.S. economic sanctions.
The action gives RBS 60 days to provide written plans to federal and state regulators detailing how it will consolidate supervision of its U.S. unit, and the unit's compliance with laws relating to money laundering, financing of terrorism and U.S. sanctions. RBS has agreed to take such steps.
It also includes an order to show how the bank will beef up technology to track its compliance, as well as a directive to undertake a comprehensive evaluation of the staff at its branches.
In addition, the bank must submit a revamped risk-management plan for the U.S. and draw up a "customer due diligence program" to ensure that suspicious transactions by customers are identified and reported.
RBS, based in Edinburgh, has substantial investment-banking operations in Stamford, Connecticut, as well as branches in the Northeast and Midwest through its retail bank subsidiary, the Rhode Island-based Citizens Financial Group.
An RBS spokesman said that the bank has been cooperating with regulators throughout the investigation that led to the order and has already taken significant steps to correct deficiencies.
"We set and expect higher standards than those that resulted in this order," RBS Chief Executive Officer Stephen Hester said in a statement released Wednesday. "RBS is well advanced in addressing the deficiencies noted by the U.S. banking authorities."
The bank has already created a position of chief risk officer, overseeing the whole business and reporting directly to the chief executive; doubled the number of staff monitoring compliance with money-laundering laws in the bank's U.S. investment-banking business; and upgraded automated systems to flag potentially problematic activity, the RBS spokesman said.
RBS is the latest foreign bank in the U.S. to be issued such an order, as U.S. regulators focus on possible breaches of money-laundering and bank-secrecy laws in response to the Sept. 11, 2001 terrorist attacks.
In October, HSBC received a similar order from the Fed and the Office of the Comptroller of the Currency after an investigation found the banking giant's procedures violated U.S. banking laws. The probe had focused on HSBC's "correspondent" banking business, a unit that sends and receives funds from banks overseas, among other HSBC business areas.
As a result of a similar investigation, London-based Barclays last year agreed to pay $298 million and admitted to processing payments to the U.S. from clients in Cuba, Sudan and other places that were under U.S. sanctions at the time.
The U.K.'s Lloyds Banking Group PLC and Credit Suisse Group AG of Switzerland also agreed to settlements. They agreed to payments totaling $350 million and $536 million, respectively.
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