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On May 3, the Financial Crimes Enforcement Network (FinCEN) and a California card club agreed to a $5 million penalty for Bank Secrecy Act (BSA) and anti-money laundering (AML) violations from 2009 to 2017. In November 2017, FinCEN assessed the company $8 million in civil money penalties but has now agreed to suspend $3 million pending compliance with certain requirements in the consent order. As previously covered by InfoBytes, FinCEN alleges the company failed to file certain Suspicious Activity Reports (SARs) regarding loan sharking and other criminal activities being conducted through the company and failed to implement sufficient internal controls to monitor risks associated with gaming practices that allowed customers to co-mingle and pool bets with anonymity. The order requires the company to, among other things, adopt an AML program and hire a qualified independent consultant to review its effectiveness and retain a compliance officer to ensure compliance with BSA requirements.
OCC announces enforcement action against Washington-based bank citing BSA/AML compliance deficiencies
On February 28, the OCC issued a consent order against a Washington-based bank for deficiencies related to its Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance program. The consent order requires the bank to, among other things, (i) maintain a Compliance Committee responsible for ensuring the bank adheres to the consent order’s provisions; (ii) appoint a BSA officer who will ensure compliance with the requirements of the BSA and the Office of Foreign Assets Control’s rules and regulations; (iii) implement an enhanced BSA/AML Risk Assessment Program, including the adoption of written policies to ensure the timely review of BSA/AML suspicious activity alerts and the implementation of an automated suspicious activity monitoring system; (iv) conduct a risk-based “Look-Back” to determine whether suspicious activity was timely identified and reported by the bank; (v) develop policies and procedures for enhanced customer due diligence to monitor information for risk; (vi) implement an independent BSA/AML audit program; and (vii) create a comprehensive training program for appropriate bank personnel. The bank did not admit to any wrongdoing in the consent order.
On February 26, the Government Accountability Office (GAO) released a report, which describes Bank Secrecy Act/anti-money laundering (BSA/AML) compliance challenges facing Southwest border banks, examines the impact “derisking” has had on banking services in this region, and evaluates responses by regulators to “derisking” concerns. “Derisking” is defined by GAO as “the practice of banks limiting certain services or ending their relationships with customers to, among other things, avoid perceived regulatory concerns about facilitating money laundering.” According to GAO, because the region has a high volume of cash and cross-border transactions, as well as a large number of foreign accountholders, banks are required to engage in more intensive and frequent monitoring and investigating to comply with BSA/AML requirements. Due to some Southwest border residents and businesses reporting challenges when trying to access banking services in the region, GAO was asked to undertake a review to determine if the access problems were due to “derisking” and branch closures.
Among other things, the report found that (i) the average number of suspicious activity reports filed in the region was two and a half times the number for high-risk counties outside the region; (ii) 80 percent of banks in the region terminated accounts due to risks related to BSA/AML; (iii) 80 percent limited or did not offer accounts to certain businesses considered high risk for money laundering and terrorist financing because those customers drew heightened BSA/AML regulatory oversight; and (iv) money-laundering risks were a more important driver of branch closures in the region than elsewhere. GAO discovered that BSA/AML regulatory concerns may be a factor in banks’ decisions to engage in “derisking” in the region, and that “the actions taken to address derisking by the federal bank regulators and the Financial Crimes Enforcement Network (FinCEN) and the retrospective reviews conducted on BSA/AML regulations have not fully considered or addressed these effects.” The account terminations and limitations, along with branch closures in the region, have raised concerns that the closures have “affected key businesses and local economies and . . . economic growth.”
GAO recommended that FinCEN, FDIC, Federal Reserve Board, and the OCC (the agencies) conduct a comprehensive review of their BSA/AML regulatory framework to assess how banks’ regulatory concerns may be affecting their decisions to provide banking services. It also recommended that the agencies jointly conduct a retrospective review of BSA/AML regulations and their implementation and revise BSA regulations as necessary to “ensure that BSA/AML regulatory objectives are being met in the most efficient and least burdensome way.”
FinCEN issues requests for comments on renewal of BSA currency transaction and suspicious activity reporting requirements
On February 9, the Financial Crimes Enforcement Network (FinCEN) issued two notices and requests for comments in the Federal Register seeking renewals without change of currently approved Bank Secrecy Act (BSA) regulatory requirements for covered financial institutions. The first notice concerns the continuance of currency transaction reporting requirements, and the second notice addresses suspicious activity reporting requirements. Comments must be received by April 10.
See here for additional BSA InfoBytes coverage.
On February 7, the OCC and DOJ announced settlements with a Netherlands-based lender’s California branch, in which the branch pled guilty to one count of conspiracy to defraud the U.S. Government for impeding and obstructing a 2012 OCC examination when it concealed deficiencies in its Bank Secrecy Act and anti-money laundering (BSA/AML) compliance programs. According to the DOJ’s press release, the branch will pay over $368 million as a result of allowing “hundreds of millions of dollars in untraceable cash, sourced from Mexico and elsewhere, to be deposited into its rural bank branches” without conducting adequate BSA/AML review, and for conspiring with several former executives to hide information from OCC officials during the 2012 examination. Among other things, the plea agreement states that the branch “created and implemented a number of policies and procedures that prevented adequate investigations into suspicious customer activity,” which included (i) creating a “Verified List” of customers whose transactions needed no further review even if there was a change in the customer’s activity from when it was verified; and (ii) instructing BSA/AML staff to “aggressively increase the number of bank accounts on the Verified List.” Further, the branch admitted it failed to both monitor and conduct adequate investigations into these transactions and submit suspicious activity reports to the Financial Crimes Enforcement Network, as required by the BSA. Additionally, in an effort to conceal deficiencies in its BSA/AML program, the branch demoted or terminated two employees who risked “contradicting” the branch’s findings. Two months before the branch's guilty plea, a former executive entered into a deferred prosecution agreement for his role in the misconduct, and agreed to cooperate with the DOJ's continuing investigation.
As part of the plea agreement, the OCC announced it had terminated a December 2013 consent order entered into with the branch over its BSA/AML failures and stated, “the OCC has determined that the bank has implemented all of the corrective actions required by the 2013 consent order and has achieved compliance with the requirements set forth in that order.” On February 6, the branch agreed to pay $50 million civil money penalty to the OCC, which will be credited towards the overall amount assessed by the DOJ.
On February 7, the SEC’s Office of Compliance Inspections and Examinations (OCIE) released its 2018 Examination Priorities, which includes cryptocurrency and Initial Coin Offerings (ICOs) for the first time. According to the document, the OCIE’s 2018 priorities reflect “certain practices, products, and services that OCIE believes may present potentially heightened risk to investors and/or the integrity of the U.S. capital markets.” The document highlights five themes:
- Retail Investors. Among other retail investor priorities, OCIE states it will focus on high-risk products, including cryptocurrency and ICO markets due to their rapid growth. Exams in this area will review whether there are adequate controls and safeguards to protect against theft and whether appropriate disclosures about the risks associated with the investments are given to investors.
- Compliance and Risks in Critical Market Infrastructure. OCIE will look at important participants in the market structure, including clearing agencies, national securities exchanges, transfer agents, and entities under Regulation SCI.
- Review of Other Regulatory Bodies. OCIE intends to review the operations and controls of the Financial Industry Regulatory Authority (FINRA) and the Municipal Securities Rulemaking Board (MSRB).
- Cybersecurity. OCIE notes that the scope and severity of cybersecurity risks have increased dramatically. According to the document, examinations will continue to focus on, among other things, data loss prevention, governance and risk assessment, and vendor management.
- AML Programs. Anti-money laundering (AML) program examinations will focus on whether the regulated entities are “appropriately adapting their AML programs to address their obligations.” More specifically, OCIE will look at whether entities are filing accurate Suspicious Activity Reports (SARs) and performing appropriate customer due diligence reviews.
On January 19, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such parties. The new enforcement actions include civil money penalty orders, cease and desist orders, prompt corrective action directives, and removal/prohibition orders. The list also includes recently terminated enforcement actions.
Civil Monetary Penalty. On December 27, the OCC issued a consent order (2017 Order) against a national bank’s South Dakota branch for violating a 2012 OCC issued consent order (2012 Order) related to deficiencies identified in the agency’s Bank Secrecy Act and anti-money laundering (BSA/AML) rules and regulations. According to the 2017 Order, the branch failed to timely comply with the 2012 Order, which required the branch to, among other things, (i) establish a Compliance Committee to oversee the branch’s adherence to the outlined provisions; (ii) submit, implement, and maintain an effective BSA/AML action plan; (iii) ensure the effective implementation of policies and procedures, which would fulfill BSA/AML and Office of Foreign Assets Control obligations; (iv) conduct a BSA/AML compliance program evaluation, risk assessment, and audit program; (v) develop appropriate customer due diligence policies and procedures, along with programs to ensure the timely identification and reporting of suspicious activity; (vi) develop practices governing the use of cash letter services and remote deposit capture; and (vii) conduct independent reviews of account and transaction activity. As a result, the 2017 Order requires the branch to pay a $70 million civil money penalty for failing to comply with the 2012 Order. The bank, while agreeing to the terms of the consent order, has not admitted or denied any wrongdoing.
On January 17, the Federal Reserve Board (Fed) ordered a Taiwanese bank to pay a $29 million penalty in connection with alleged Bank Secrecy Act and anti-money laundering (BSA/AML) violations. According to the Fed’s Order, examinations conducted in 2016 identified “significant deficiencies” in three of the bank’s U.S. branches’ BSA/AML compliance and risk management controls. In addition to assessing a penalty, the Order required the bank and its New York, Chicago, and San Jose branches to, among other things, (i) submit a written plan from the board of directors for improving senior management oversight, including building a sustainable governance framework for BSA/AML compliance; (ii) submit compliance plans for enhanced internal controls, independent testing, risk assessment, and employee training; (iii) submit a revised program designed to conduct customer due diligence; (iv) ensure timely, accurate, and complete suspicious activity monitoring and reporting; (v) engage an independent third-party to review the identification and reporting of suspicious activity “involving high risk customers or transactions”; (vi) comply with Office of Foreign Assets Control regulations; and (vii) submit periodic progress reports to the branches’ applicable Federal Reserve Banks detailing actions taken to comply with the provisions of the order.
On January 17, the Senate Committee on Banking, Housing, and Urban Affairs held a second hearing with witnesses from the Treasury and Justice departments to further address the need to modernize and reform the Bank Secrecy Act and anti-money laundering (BSA/AML) regime. The hearing, entitled “Combating Money Laundering and Other Forms of Illicit Finance: Administration Perspectives on Reforming and Strengthening BSA Enforcement,” follows a January 9 hearing before the same Committee on related issues (see previous InfoBytes coverage here). Committee Chairman Mike Crapo, R-Idaho, opened the hearing by stating the need to understand the government’s position on “strengthening enforcement and protecting the integrity of the U.S. financial system in a new technological era,” while also recognizing the challenges technology creates for law enforcement. A primary topic of interest to the Committee was “the rise of cryptocurrencies and their potential to facilitate sanctions evasion and perhaps, other crimes.”
The first witness, Treasury’s undersecretary for terrorism and financial crimes, Sigal Mandelker (testimony), noted that money laundering related to cryptocurrencies is “an area of high focus” for Treasury, and highlighted actions taken by Treasury’s Financial Crimes Enforcement Network (FinCEN), such as the release of guidance announcing that “virtual currency exchangers and administrators” are subject to regulations under the BSA. Regulated entities, Mandelker stated, are required to file suspicious activity reports (SARs) and are subject to FinCEN and IRS examinations and enforcement actions. Mandelker further commented that Treasury is “aggressively tackling” illicit financing entering the U.S. system and elsewhere, and stressed that other countries face consequences if they fail to have an AML/Combating the Financing of Terrorism regime that meets Treasury standards.
The second witness, DOJ acting deputy assistant attorney general M. Kendall Day (testimony), informed the Committee of the recent hiring of a digital currency counsel who is responsible for ensuring prosecutors are up-to-date on the latest money-laundering threats in the digital currency field. Day also commented on recent DOJ prosecutions in this space, and emphasized the need for enhanced information sharing for law enforcement, including the benefit of deriving information from SARs.
On January 9, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing entitled, “Combating Money Laundering and Other Forms of Illicit Finance: Opportunities to Reform and Strengthen BSA Enforcement” to discuss anti-money laundering and Bank Secrecy Act (AML/BSA) enforcement and compliance. Committee Chairman Mike Crapo (R-Idaho) opened the hearing by stating that Congress and financial regulators must examine and address “decades-old” Bank Secrecy Act and anti-money laundering requirements in order “to sharpen the focus, sustainability and enforcement of a modernized, more efficient U.S. counter-threat-finance architecture.” During the hearing, the Committee stressed the need to move towards a more targeted, strengthened AML framework so that banks, law enforcement, and regulators can focus on specific threats such as the financing of terrorism and sanctions evasions.
The three witnesses offered numerous insights related to reforming AML/BSA enforcement and regulatory structures, including: (i) establishing an approach that would utilize and track intelligence and analysis rather than focusing primarily on quantifiable metrics; (ii) increasing inter-agency coordination and improving information sharing between financial institutions and regulators, and among financial institutions themselves; (iii) recognizing the importance of law enforcement participation, specifically related to the sharing of suspicious activity reports; (iv) encouraging the participation of entities outside of the banking sector, such as persons involved in real estate or those acting as proxies for financial system access; (v) supporting beneficial ownership legislation for companies formed in the United States; and (v) understanding the ways in which financial institutions are addressing the anonymity of cryptocurrencies and blockchain technology. The witnesses were:
- Mr. Dennis Lormel, President and CEO, DML Associates and former Chief, FBI Financial Crimes Program (testimony);
- Mr. Greg Baer, President, The Clearing House Association (testimony); and
- Ms. Heather Lowe, Legal Counsel and Director of Government Affairs, Global Financial Integrity (testimony).
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