Tag Archives: bank secrecy act

Texas Bank Penalized $2 Million for Violations of Anti-Money Laundering

FinCEN assesses civil money penalty against Lone Star National Bank (Lone Star) of Pharr, Texas for willfully violating the Bank Secrecy Act

By Jeff Sorg, OnlineEd Blog

(November 2, 2017)

canstockphoto18625424 compliance street sign(WASHINGTON, D.C.) – The Financial Crimes Enforcement Network (FinCEN) today announced the assessment of a $2 million civil money penalty against Lone Star National Bank (Lone Star) of Pharr, Texas for willfully violating the Bank Secrecy Act (BSA). The action underscores the dangers that institutions face when taking on international correspondence activities without properly equipping themselves to manage such business. As noted in FinCEN’s assessment, among other lapses, Lone Star failed to comply with section 312 of the USA PATRIOT Act, which imposes specific due diligence obligations with respect to correspondent banking.

Many of the lapses in Lone Star’s BSA compliance were previously covered in an earlier action by the Office of the Comptroller of the Currency (OCC), but FinCEN’s action focusing on the bank’s 312 violations specifically highlights the need for a financial institution to avoid taking on international business for which it is not prepared. Lone Star’s Mexican financial institution customer was moving millions of dollars through Lone Star in a manner inconsistent with the parameters of a relationship which, at the outset, required greater scrutiny. Lone Star failed to identify and consider public information about the foreign bank owner’s alleged involvement in securities fraud. It also failed to verify the accuracy of assertions by the foreign bank with respect to source of funds, purpose of the account, and expected activity.

“Lone Star plainly failed to ask obvious due diligence questions in connection with its foreign bank account relationship, and did not follow up on inconsistencies in answers to the questions that it did ask,” said FinCEN Acting Director Jamal El-Hindi. “Notwithstanding the fact that the OCC already fined the bank, FinCEN’s assessment takes into account the penalties specifically applicable under FinCEN’s Section 312 authority. Smaller banks, just like the bigger ones, need to fully understand and follow the 312 due diligence requirements if they open up accounts for foreign banks. The risks can indeed be managed, but not if they are ignored.”

With respect to many of the deficiencies noted in FinCEN’s assessment, the OCC entered into a Consent Order and a Memorandum of Understanding with Lone Star in 2012. Lone Star continued to have severe programmatic anti-money laundering (AML) deficiencies through 2012, 2013, and 2014. As a result, in 2015, the OCC issued a Consent Order for a Civil Money Penalty in the amount of $1 million against Lone Star. Lone Star’s previous penalty payment to the OCC will be credited to FinCEN’s assessment and the bank will pay an additional $1 million to satisfy its obligation to FinCEN.

FinCEN recognizes that Lone Star has expended considerable resources to respond to the findings regarding its BSA program and to promote compliance with the OCC’s Consent Order. Lone Star is no longer engaging in the correspondent banking activities for which it was ill prepared. The bank has contracted outside consultants to conduct independent testing, conduct customer due diligence and suspicious activity lookbacks, and has expanded its BSA compliance organization.

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FinCEN Penalizes California Bank for Egregious Violations of Anti-Money Laundering Laws

Merchants failed to establish and implement an adequate anti-money laundering (AML) program

OnlineEd Blog

gavel money(February 28, 2017) – WASHINGTON—The Financial Crimes Enforcement Network (FinCEN) today announced the assessment of a $7 million civil money penalty (CMP) against Merchants Bank of California of Carson, CA for willful violations of several provisions of the Bank Secrecy Act (BSA). The Office of the Comptroller of the Currency (OCC), the primary federal regulator of Merchants, has identified deficiencies in the Bank’s practices that resulted in violations of previous consent orders entered into by Merchants, as well as other violations. The OCC simultaneously assessed a $1 million CMP against Merchants for these violations.

Merchants failed to (a) establish and implement an adequate anti-money laundering (AML) program, (b) conduct required due diligence on its foreign correspondent accounts, and (c) detect and report suspicious activity. Merchants’ failures allowed billions of dollars to flow through the U.S. financial system without effective monitoring to adequately detect and report suspicious activity. Many of these transactions were conducted on behalf of money services businesses (MSBs) that were owned or managed by Bank insiders who encouraged staff to process these transactions without question or face potential dismissal or retaliation. Bank insiders directly interfered with the BSA staff’s attempts to investigate suspicious activity related to these insiderowned accounts.

“The banking of money services businesses is important to the global financial system, and we believe that banks can mitigate the risks associated with such businesses, just as they do with other customers,” said FinCEN Acting Director Jamal El-Hindi. “But here we had an institution run by insiders essentially to provide banking services to MSBs that the insiders owned, combined with directions from Bank leadership to staff to ignore BSA requirements with respect to those MSB customers and others. It is certainly not an acceptable way to bank MSBs.”

Merchants specialized in providing banking services for check-cashers and money transmitters. However, it provided those services without adequately assessing the money laundering risks and without designing an effective AML program. Merchants also provided its high-risk customers with remote deposit capture services without adequate procedures for monitoring their use.

Merchants failed to provide the necessary level of authority, independence, and responsibility to its BSA officer to ensure compliance with the BSA as required, and compliance staff was not empowered with sufficient authority to implement the Bank’s AML program. Merchants’ leadership impeded BSA analysts and other employees from investigating activity on transactions associated with accounts that were affiliated with Bank executives, and the activity in these accounts went unreported for many years. Merchants’ interest in revenue compromised efforts to effectively manage and mitigate its deficiencies and risks.

In addition, Merchants banked customers located in several jurisdictions considered to be highrisk but did not identify these customers as foreign correspondent customers and therefore did not implement the required customer due diligence program. In a three-month period, Merchants processed a combined $192 million in high-risk wire transfers through some of these accounts.

The Bank’s payment of the $1 Million OCC penalty will be credited towards the satisfaction of the FinCEN penalty. FinCEN’s settlement with a financial institution does not preclude consideration of separate enforcement actions that may be warranted with respect to any financial institution or any partner, director, officer, or employee of a financial institution.

FinCEN seeks to protect the U.S. financial system from being exploited by illicit actors. Its efforts focus on compromised financial institutions and their employees, significant fraud, thirdparty money launderers, transnational organized crime and security threats, and cyber threats. FinCEN has a broad array of enforcement authorities to target both domestic and foreign actors affecting the U.S. financial system.

[Source: FinCEN media release]

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For more information about OnlineEd and their education for real estate brokers, principal brokers, property managers, and mortgage brokers, visit www.OnlineEd.com.

All information contained in this posting is deemed correct as of the date of publication, but is not guaranteed by the author and may have been obtained from third-party sources. Due to the fluid nature of the subject matter, regulations, requirements and laws, prices and all other information may or may not be correct in the future and should be verified if cited, shared or otherwise republished.

OnlineEd® is a registered Trademark