Introduction
This research paper looks into MUFG as a financial institution that is repeatedly "in trouble" with US and European authorities for not following anti-money laundering regulatory requirements. MUFG is a global financial institution headquartered in Japan and is conducting business in the United States. The findings are based on the OCC's enforcement orders, and MUFG is not obligated to pay a financial penalty. This research reveals that the bank must strengthen its risk assessment procedures and compliance with anti-money laundering laws. Nevertheless, the order reveals that the bank needs to develop a remediation plan and ensure that it has qualified compliance personnel at its branches to carry out consistent audits and risk assessments. Further revelation by the New York regulators' claims in Court filings, shows that MUFG ousted the state monitor without indicating that the glitches established in the report had been addressed when it swapped its state charter for a national charter. Though, the argument is between the New York regulators and MUFG bank over whether the bank was permitted to shift from a state bank whereas the state was still scrutinizing its control capability on money laundering. Moreover, the paper incorporates the "bad corporate behavior" as exhibited in different MUFG branches. The paper concludes by identifying whether the concern is a cultural issue within the management of the organization, lack of oversight or intentional disregard of US/European regulations and/or all of the issues.
Overview of Mitsubishi UFJ Financial Group, Inc. Presence in General and U.S.
Mitsubishi UFJ Financial Group, Inc. (MUFG) is a parent firm incorporated as a joint-stock corporation (Kabushiki Kaisha) under the Corporation Law of Japan. MUFG is the parent business for the Mitsubishi UFJ Trust and Banking Corporation (MUTB), The Bank of Tokyo-Mitsubishi UFJ, Ltd (BTMU), Mitsubishi UFJ Securities Holdings Co., Ltd. (MUSHD), Mitsubishi UFJ NICOS Co., Ltd., Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. (MUMSS) as well as other corporations involved in a variety of financial trades.
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MUFG remains one of the leading and most differentiated financial business groups in the world with cumulative assets worth ¥254 trillion as of March 31, 2014 ( Lim, Wang, Ren, & Lo, (2019 ). MUFG is overseen under the Banking Law of Japan due to its status as a banking corporation. The bank offers a wide range of services such as commercial banking, securities, trust banking, consumer finance, credit cards, leasing, asset management and many other fields of financial services. MUFG boasts of having the largest overseas network of banks among the Japanese banks comprising of offices and subsidiaries such as MUB in over 40 countries. As of March 31, 2014, the bank already had five commercial segments including Integrated Retail Banking Business, Integrated Trust Assets Business, Integrated Corporate Banking Business, Global Markets, and Integrated Global Business. The role of MUFG as the parent firm is to tactically manage as well as incorporate the activities of the industry segments. The group-wide approaches are determined by the parent establishment and implemented by the bank’s subsidiaries alongside other subsidiaries (Lim et al., 2019).
MUFG's presence in the US with regards to the assets accounts for nearly 16% of the cumulative assets based mainly on the domicile of obligors. Operations in the U.S. are carried out mainly through three entities namely Mitsubishi UFJ Securities USA), Inc., (MUS(USA))-a broker-dealer subsidiary of MUSHD based in U.S., MUB-a branch of BTMU based in New York (BTMU-NY). MUB operates 422 branches comprising mainly of retail banking branches situated mostly in the West Coast States. Other branches are in Illinois, Texas, Georgia, and New York alongside other two international offices. By 31st December 2013, MUB had 11,308 employees in the whole country and its deposits accumulated to $ 80 billion. Both MUS(USA) and BTMU-NY are headquartered in New York. By March 31st, 2014, BTMU-NY had 2,135 full-time employees in the U.S. Besides, BTMU-NY controlled three banking offices out of Minnesota, Atlanta and Dallas, and one agency out of Houston (Lim et al., 2019). By 31st March 2014, BTMU-NY had cumulative assets of $134 billion. On the other hand, the main broker-dealer of MUFG, MUS9USA) had 259 full-time employees and operates out of San Francisco and New York. By 1st July 2014, BTMU, a U.S. banking branch was integrated with MUB. Due to the initiative, all of the banking activities of BTMU in the U.S were to be managed by MUB's employees. The initiative includes the addition of close to 2,300 American employees of BTMU transferred to MUB.
Literature Review
Anti-Money Laundering is a set of laws, procedures, and regulations instituted to prevent criminals from disguising unlawfully gained funds as legitimate income. Even though the anti-money laundering laws entails a relatively restricted range of transactions and criminal behavior, their consequences are far-reaching. For instance, anti-money laundering laws necessitate that banks including other financial establishments that are responsible for issuing credit and/or allowing clients to open deposit accounts adhere to laws and procedures to acertain they are not assisting in laundering money ( Buchanan, & Zabala, 2017 ).
Anti-money laundering regulations and laws target criminal acts such as manipulation of markets, corruption of public funds, tax evasion, illegal goods trade, alongside the methods that are applied to conceal the crimes and the money gained from the practices. Criminals most often strive to launder money they unlawfully gain through several acts, for example, drug trafficking so that it can easily be traced back to the individuals ( Prasad, 2018 ). One of the prevailing methods is to pass the money through a valid cash-supported business owned by the organization of criminals and/or its affiliates. The purportedly legal business can deposit the money; thus, the criminal groups can withdraw.
Money launderers can as well sneak cash into overseas nations to deposit it in smaller boosts that may raise suspicion. Besides, money launderers can use sneaked cash to purchase other cash items. Occasionally, launderers of money will invest it through fraudulent brokers who have the will to disregard the laws and procedures for the gain of large commissions ( Buchanan, & Zabala, 2017 ).
Money launderers usually strive to disguise unlawfully gained money by integrating it in a legitimate cash trade. Thus, it is up to the financial institutions or banks to oversee the deposits of their patrons and other business transactions to ensure that they are not part of the plan for money laundering. Therefore, the institutions have to verify the source of the large amounts of cash, monitor any suspicious activities, as well as report any cash dealings that surpass $10,000. Nevertheless, financial institutions are obligated to ensure that clients are aware of the laws aside from complying with the anti-money laundering laws.
Money laundering investigations by law enforcement bodies and the police usually entail assessing financial records for suspicious activities or inconsistencies. In the current regulatory setting, extensive records are kept regarding substantial financial transactions. Thus, when the police make efforts to trace any criminal activity to its culprits, some approaches are more applicable than tracing the dealings of financial records they were involved in ( Ligeti, & Franssen, 2017 ). In cases of mugging, larceny or embezzlement, the law enforcement body can often return the monies or property located during the investigation of money laundering act to the victims of the crime. For instance, if a law enforcement body ascertains the money a criminal laundered to disguise fraud, the enforcement body can always trace it back to the individuals whom the money was stolen ( Prasad, 2018 ).
The complicated globalization process has led to new prospects for cross-boundary economic misconduct. To scrutinise the kind of cross-boundary criminalities, specifically where company handlings are involved, it is important to determine the contours of the perception of cross-boundary criminalities and to distinguish the typology of offenses from cross-boundary criminalities. Money laundering and its associated cross-border subtleties are important in demonstrating how an accurate cross-border apparatus evolved in the last 20 years to counter conducts traditionally addressed within the boundaries of individual countries. Nonetheless, based on the establishment of the subject supposedly accountable for the criminality, it is needful to examine the matter on corporate illegal liability from a comparative viewpoint ( Kurmashov, 2019 ). However, with regards to the main problem of jurisdiction, the boundary between universal and cross-border crimes remains applicable, given that the former can be subject to a laissez-faire outdated or pure worldwide jurisdiction. On the other hand, influence over extraterritorial cross-border criminalities is typically far more limited, as clearly demonstrated by the associated requirements of the universal instruments against money laundering. The constant perpetuation of such actions under the protection of commercial bodies further confounds the situation.
Regarding money laundering and economic globalization, it is needful to understand in this context that globalization refers to the instant transmission of capital flows across the borders and the financial markets liberalization. Thus, only extremely coordinated actions at the global stage can effectively address money laundering. Money laundering shows its most damaging proof in the worldwide arena ( Kurmashov, 2019 ). Based on the gradually delocalized landscape of financial procedures, the regulation itself loses its national heritages and becomes delocalized via the many procedures of universal collaboration designed to adopt cross-border instruments and policies, of which anti-money laundering law is just a particular case. The variation between territory and law infers the ultimate damage of regional peculiarities and similarly facing hitches in applying a system of international authority. The strains are apparent when addressing issues, for example, the meaning of laundering behavior, the design of a suitable regime for sanctioning legal bodies and the necessity to solve the jurisdictional concerns posed by cross-border dynamics of money laundering.
Money laundering regulation could be inferred as a particular action to the control gap that globalization generates in the field of criminality regulation. Therefore, the elimination of borders, advances in technology and the efficiency in communication and trade are instrumental in multiplying illegality. Also, the forum shopping practice has strengthened the adeptness for the heightening of the global co-operation, for instance, the upholding of jurisdictive differences that allows criminal organizations to benefit from the irregularities emerging from the prevalence of many legal procedures, irrespective of their usual collective roots. The obsolesce and the shortage of the traditional countrywide law call for collective action of different republics to ensure successful safeguard from cross-border crime. Money laundering acts comprise definitive cross-border criminalities to be systematically tackled by particular cross-border provisions. Thus, this research looks into MUFG bank as a financial institution that has repeatedly been in trouble with US and European authorities for not adhering to anti-money laundering regulatory requirements.
Methodology
Data Extraction
In this research, a systematic review of the literature was carried out. Relevant articles were identified, synthesized as well as critically evaluated after a thorough search across diverse databases. Throughout the search procedure, scheduled inclusion and exclusion methods were adopted to all identified articles ( Bonardi, Clifford, & Hadar, 2017 ). After that, the data from selected articles were extracted.
Search Procedure
Diverse search words were applied to gather articles that were relevant to the purpose and research question. The search words characterized the ideas of financial institutions who are repeatedly "in trouble" with US and European authorities for not following AML regulatory requirements.
Selection Criteria
The exclusion and inclusion approach related to the purpose and research question of this study was applied to make a selection of the articles identified. The systematic study of the literature focused on MUFG bank, a global financial institution headquartered in Japan and have other businesses in the U.S. as well as are repeatedly "in trouble" with US and European authorities for not following Anti-money laundering regulatory requirements (Amundsen et al., 2018).
Selection Process
The preliminary two stages of the course of selection were the title of the research together with the abstract screening followed by full-text screening. The peer-reviewed articles were retrieved from online databases by hand to carry out both the screening of the research title and abstract. Besides, the peer-reviewed articles were subsequently used for the research title and abstract screening.
Findings
According to New York regulators, there have been weaknesses in the due diligence and risk management procedures of the U.S. branches of Japan's largest bank (MUFG) to strengthen anti-money laundering regulations. Based on the cease-and-desist order issuance for the Chicago, Los Angeles, and New York branches of MUFG Bank Ltd., a subsidiary of Mitsubishi UFJ Financial Group Inc., situated in Tokyo, Japan, the branches are reported to have failed to file reports on suspicious client activities on time. Besides, the bank branches exhibited some systematic deficiencies in how they monitored high-risk transactions and correspondent accounts for foreign financial institutions.
According to the OCC's enforcement order, MUFG is not obligated to pay a financial penalty; however, the company must strengthen its risk assessment procedures and compliance with anti-money laundering laws. Nevertheless, the order necessitates the company to develop a remediation plan and ensure that it has qualified compliance personnel at its branches to carry out consistent audits and risk assessments.
In late 2017, MUFG switched to a federal banking charter. Earlier, the state regulators oversaw MUFG branches. The New York Department of Financial Services stated that in 2013 and 2014 the monitoring system of MUFG for countries under sanctions was insufficient. Thus, the company paid an associated fine of $565 million. At the time of conversion, DFS had been preparing to admonish MUFG for not heightening the level of monitoring whether customers were evading the U.S. sanctions on countries like North Korea and Iran. Since then, MUFG has been in legal battles with the New York regulator. The New York regulator criticized the charter conversion as a way of regulatory arbitrage as it allows banks to seek out more lenient supervisors. However, the OCC directive does not apply to MUFG Union Bank, a $131 billion assets regional bank situated in San Francisco.
Discussion
MUFG, Japan's leading and largest bank has already been reprimanded by the State of New York for allowing nations listed for sanctions including Myanmar and Iran to route outlays through its systems ( Cvetkova, 2018 ). However, the recent inquiry is weighty as it is a federal case that involves North Korea. MUFG was ordered by the Manhattan’s Federal prosecutors in late 2017 as it was engaged in a court battle with the New York Department of Financial Services. The lawsuit involves the attempt of the New York Department of Financial Services to reprimand the MUFG for breaking laws and procedures of anti-money laundering.
The order was issued after the state pronounced in a court filing that MUFG had purposefully disregarded an internal filter premediated to keep it from conducting business with corporations and individuals on international lists of sanctions. According to the Department of Financial Services, MUFG failed to introduce a mechanism for checking the identities of specific Chinese clients of the bank carrying out business along the border of North Korea, which is rampant for money laundering ( Kubota, 2015 ).
Though it was not well-defined whether prosecutors had established any proof that North Koreans laundered money through MUFG bank, it is supposed that the loopholes in the scheme meant to trace the dealings were the main issue for the Department of Financial Services. The federal investigation arose from the 2018 legal confrontation of the state with MUFG bank based in Tokyo and identified as Mitsubishi UFJ. In 2013, the Department of Financial Services penalized Mitsubishi UFJ-Tokyo bank $250 million for deleting data from its records regarding dealings that involved parties in different nations including Myanmar and Iran. In 2014, the state again fined MUFG bank an extra $315 Million for attempting to cover intelligence about the misconduct.
In 2017, MUFG bank reclassified itself and acquired the status of a national bank so that it is no longer overseen by state regulatory agency and be punished by the authority. According to the MUFG bank management, reclassification of the bank was done for efficacy reasons whereas the officials state that the bank attempted to avoid penalties by seeking out an alternative supervisory entity, which is the Federal Office of the Comptroller of the Currency.
As clarifies the state regulator, MUFG bank has been using HotScan, an electronic system of screening to sought through its monetary transactions for any sign of investments by countries or individuals barred from carrying out trade activities with the United States. Based on New York claims, the bank was aware but never uncovered the allegations for 10 years, HotScan rarely delinks information regarding the nations where specific dealings originated. Besides, the state stated that the scheme did not allow manipulators in certain localities to enter North Korea as it is one of those nations involved in the deal ( Cvetkova, 2018 ). Thus, the deal would not be selected for closer examination. In 2016, based on the court filings, MUFG told New York that it had discovered over 30 branches of financial institutions around the world where anomalies existed.
After penalizing MUFG, New York instituted an independent overseer in the bank to scrutinise the bank's system for getting sanctions evaders and criminals. In March 2017, the monitor stated that a former employee of the bank answerable for the bank's program of anti-money laundering described the program as a dumpster fire. The developments were followed by MUFG switching to a national charter in November after giving an eight days' notice to New York that it was contemplating the switch.
According to the New York regulators' claims in Court filings, MUFG disqualified the state monitor without any indication that the glitches established in the report had been addressed when it transacted its earlier state charter for a current national charter. But, the argument is between the New York regulators and MUFG bank over whether the financial institution was allowed to shift from a state bank whereas the state was still scrutinizing its control capability on money laundering.
Many banks have gotten into trouble by at least withholding on recording suspicious activity with the authorities. In February 2018, a United States bank agreed to pay over $600 million fines imposed by federal authorities after influential bank officers were found to have disregarded the notice by its screening systems on some clients as it did not have adequate personnel to handle the reports. The main explanation for the thorough examination of money laundering regulations at the banks is that bank transactions are occasionally the particular points at which sanctions are administered. With regards to North Korea's case, the U.S. and the E.U. have not been as authoritarian as they could be applying their sanctions by not battening the entrances to restrain North Korea's implementation of the financial scheme. Based on a regulatory filing, the new federal overseers of MUFG stated that the bank was working towards fixing its alert mechanisms.
In summary, this is a subtle time for big banks making efforts to persuade legislators and controllers that rules for anti-money-laundering are too hard to obey. Trade groups are now focused on Congress to alleviate banks of the duty to establish a customer's true ownership and to amendment the necessities for reporting any apprehensive dealings. The claim comes after the statement that banks will be penalized heavily if they fail to report suspicious activity. The banking industry is working towards eliminating any acts of terrorism and money laundering.
Conclusion and Recommendation
Based on the findings, MUFG bank is involved in "bad corporate behavior" that involves cultural issue within its organizational management, insufficient oversight and intentional disregard of U.S. First, MUFG should develop an effective policy guideline on anti-money laundering to counter-terrorism financing and national, international as well as extra-territorial sanctions enforcements.
To ensure a robust foundation for an effective fight against money laundering, MUFG should commit to zero-tolerance on intentional violations of anti-money laundering laws and regulations. Whereas the MUFG may not tolerate any derogation from the applicable laws, regulations, and procedures, the bank must be conscious of the prevailing risk associated with the interpretation of the regulations and laws and take considerable measures to limit the risks. Further, the bank should understand that emerging sectors will always be inadequately regulated. Thus, MUFG must always and proactively update and strengthen their compliance procedures and policies based on effective corporate values and code of conduct upon assessment of all risks including the areas that are currently not exposed to regulation.
Additionally, MUFG should fully respect the measures taken by the government, more so the regulatory authorities and the financial sector supervision to fight money laundering and to recognize the requirements set forth by the authorities as minimum standards to be adhered to in their day to day activities. Besides, the MUFG bank should corporate fully and on time by disclosing the necessary information to all the concerned parties to enhance the effective fight against money laundering. The U.S. and E.U. economy needs a well-developed and consistent banking industry. Money laundering has been established as the main threat to the U.S. and E.U. financial sector. MUFG should dully account for its significant role in the economy and anti-money laundering threats it is facing to consistently determining and documenting its corporate values and code of conduct. In the MUFG's decision-making process, its supervisory members, the management board and heads of departments and units including employees, should evaluate their decisions against the regulatory expectations, the interests of the whole financial sector and the larger society as well as high ethical standards, apart from profitability and the general business case considerations. Most importantly, the high ethical standards act as a safeguard against the unlawful action and exclude wilful blindness situation irrespective of where the action is conducted.
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