The Industrial Bank of Korea, one of South Korea's largest banks, will pay $86 million to settle U.S. and New York state criminal and civil charges that the bank allowed an illegal transfer of more than $1 billion to Iran that violated U.S. sanctions.

The settlement includes the forfeiture of $51 million, plus a $35 million civil fine to the New York State Department of Financial Services.

In a statement, the government said the Korean bank repeatedly failed to establish adequate internal policies and risk control systems compliant with the New York Bank Secrecy Act and anti-money laundering regulations.

The government said that Industrial Bank of Korea client Kenneth Zong, a U.S. citizen, circumvented U.S. sanctions laws by transferring funds from restricted accounts to his personal account in Korean won, converted the funds into U.S. dollars and transferred them to individuals and entities in Iran.

In 2016, the Industrial Bank of Korea reached an agreement to improve its compliance and risk management programs. The New York Department of Financial Services said while the bank made substantial improvements in parts of its compliance program between 2016 and 2018, subsequent safety and soundness examinations found that the compliance with anti-money laundering laws and regulations had declined even further. The bank also was found to be out of compliance with the state's Transaction Monitoring and Filtering Regulation.

As part of the settlement, the Industrial Bank of Korea has agreed to submit a written plan to revise its 2016 agreement with the government and improve its compliance and customer due diligence programs to be in compliance with anti-money laundering and other relevant regulations. The bank is also required to submit quarterly reports to the government on changes in its compliance programs.

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