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November 15, 2001
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State Bank of India fined $7.5 mn for 'unsafe practices'

US authorities have imposed a fine of $7.5 million on the State Bank of India for violation of banking laws and failure to maintain accurate records and the Indian entity has consented to comply with the penalty.

"The fines result from the bank's apparent engagement in unsafe and unsound practices related to its failure to establish and maintain procedures reasonably designed to assure and monitor compliance with the Bank Secrecy Act.

"It's failure to maintain correct and accurate books and records and make reports to the New York State Banking Department," Federal Reserve said in a joint statement with the Federal Deposit Insurance Corporation and the New York State Banking Department on Wednesday.

"The SBI, without admitting to any allegations, consented to the issuance of the order," it said, adding the Indian entity agreed to pay a total of $7.5 million in fines under the order issued by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and the New York State Banking Department.

"One half of this amount will be paid to the US department of the treasury and the other half to the State of New York under applicable federal and State laws," it said in an order running into 27 pages.

Federal and state banking regulators announced the issuance of a joint order Wednesday to cease and desist an Order of Assessment of a Civil Money Penalty and Monetary Payment against the SBI, Bombay and the bank's three branches in New York, Chicago and an agency in Los Angeles.

Under the order, the bank must also ensure "full compliance with suspicious activity reporting" and enhance and improve policies to comply with US regulations on reporting currency and foreign transactions.

"SBI-US has intends to take the steps necessary to enhance and improve operations' management oversight, internal controls, audit standards and customer due diligence practices, and to enhance and improve policies and procedures for compliance with various acts and rules," the order said.

The joint order also requires an independent review of SBI's books, including an analysis of funds-transfer accounts dating back to January 1, 1998.

The review will determine whether records relating to transactions in these accounts are complete, and "identify and investigate suspicious or unusual activities, if any" conducted through these accounts.

After the independent review, to be completed within 120 days, the bank must provide regulators with a plan that provides for determining whether currency and other transactions "are being conducted for illegitimate purposes."

With respect to New York branches, the order says that the independent firm shall issue a report on the balance sheet and accompanying disclosures, including off-balance sheet amounts and assets held on behalf of others, as of June 30, 2001, for each of the New York branches and a consolidating balance sheet and accompanying disclosures.

The order also requires the SBI to tighten its procedures for accepting funds for transfer out of the US by its "non-resident Indian" department in its US operations.

"Beginning 10 days from the date of this order, the branches and the agency shall not, with respect to the department entitled 'NRI' accept any funds for transfer outside the US by draft or wire if the customer of the NRI department does not maintain a deposit account with SBI-US in the US.

The Bank shall also provide to the supervisors the full names and addresses of the beneficial owners of all of the accounts that were the subject of the March 22, 2001 information request by the New York Reserve Bank to the New York branches, it said.

The order states that the SBI-US shall continue to develop and improve its internal audit programme to the standards of the Institute for Internal Auditors.

SBI-US and its institution-affiliated parties shall not, directly or indirectly, violate bank secrecy laws, it said, adding it shall also submit within 30 days of the receipt of the report of the independent firm an acceptable written enhanced customer due diligence programme.

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