Japanese authority rebukes Bank of Tokyo-Mitsubishi UFJ

TOKYO – Bank of Tokyo-Mitsubishi UFJ was lambasted by Japan's Financial Services Agency in June for a variety of compliance and operational failings, mainly related to the financial institution's overseas operations.

According to incident reports submitted by the bank to the regulator, the bank engaged in violations of local laws and regulations of foreign countries, and there have been many incidents involving expatriate staff and locally hired staff in management positions. According to the regulator, these stemmed from a failure to analyse and assess risks of conducting business operations in compliance with laws and regulations of foreign countries, as well as to review and enhance necessary systems based on the assessment in a unified, timely and precise fashion. Consequently, insufficient management resources were allocated to the review and enhancement of necessary systems, weakening the bank's governance, compliance and internal control systems.

For example, the US subsidiary of the bank was punished by US regulators in December 2006 for money-laundering violations. Additionally, at a number of overseas branches, expatriate staff and locally hired staff in management positions executed transactions prohibited by internal rules and credit transactions in violation of internal procedures. In the application for the approval of such transactions, contents of falsified transactions were written in the application form and forged documents were used. Furthermore, the division in charge of approving transactions gave approval without sufficiently confirming the contents of the transactions.

To make matters worse, at the Shanghai branch of the bank, a locally hired staff member in a management position abused his authority to select equipment suppliers, received bribes and was arrested by the local law enforcement agency in June 2006. Sufficient measures to prevent misconduct such as bribery were not taken, including monitoring by other divisions associated with the selection of suppliers.

Apparently other incidents have occurred at a number of overseas business bases, including the embezzlement and unauthorised withdrawal of bank funds by locally hired employees due to weak internal control systems, as exemplified by the inadequate development of internal rules and the failure to enforce employees' compliance with rules.

Bank of Tokyo-Mitsubishi UFJ is required to put a more robust internal controls framework in place, train its employees more aggressively and co-operate with the regulator fully in the improvement of its governance, risk and compliance systems.