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Deputy AG Outlines Financial Crimes Enforcement Approach, Compliance Expectations
On November 18, at an American Bar Association/American Bankers Association conference on the Bank Secrecy Act/Anti-Money Laundering (BSA/AML), Deputy Attorney General (Deputy AG) James Cole challenged financial institutions’ compliance efforts and outlined the DOJ’s financial crimes enforcement approach. Noting that compliance within financial institutions is of particular concern to the DOJ, based in part on recent cases of “serious criminal conduct by bank employees,” the nation’s second highest ranking law enforcement official detailed DOJ’s approach to investigating and deciding in what manner to pursue potential violations. The Deputy AG included among his examples of serious misconduct recent BSA/AML, RMBS, mortgage False Claims Act, and LIBOR cases. He explained that the DOJ is particularly concerned about incentives that encourage excessive risk taking, and stated that “too many bank employees and supervisors value coming as close to the line as possible, or even crossing the line, as being ‘competitive’ or ‘aggressive.’”
Deputy AG Cole stated that the DOJ’s decisions about bringing criminal prosecutions are informed by the Principles of Federal Prosecution of Business Organizations, which include, among other factors: (i) the nature and seriousness of the offense; (ii) the pervasiveness of the wrongdoing within the corporation, including the complicity of corporate management; (iii) the corporation’s history of similar misconduct, including prior criminal, civil, and regulatory actions against it; and (iv) the adequacy of a corporation’s pre-existing compliance program. He added that the DOJ “look[s] hard at the messages that bank management and supervisors are actually giving to employees in the context of their day-to-day work.” Specifically, the DOJ (i) reviews chats, emails, and recorded phone calls; (ii) talks to witnesses to assess management’s compliance message; and (iii) examines the “incentives that banks provide their employees to either cross the line, or to exhibit compliant behavior.”
The Deputy AG stressed that “[i]f a financial institution wants to encourage compliance – if its values are not skewed towards making money at all costs – then that message must be conveyed to employees in a meaningful and effective way if they’d like [the] Department to view it as credible.” He echoed past calls by federal authorities for institutions to create “cultures of compliance” that include “real, effective, and proactive” compliance programs. Any institution that fails to do so, he cautioned, could be subject to prosecution.
Federal, State Authorities Announce Largest RMBS Settlement To Date
On November 19, the DOJ, other federal authorities, and state authorities in California, Delaware, Illinois, and Massachusetts, announced a $13 billion settlement of federal and state RMBS civil claims, which were being pursued as part of the state-federal RMBS Working Group, part of the Obama Administration’s Financial Fraud Enforcement Task Force. The DOJ described the settlement as the largest it has ever entered with a single entity. Federal and state law enforcement authorities and financial regulators alleged that the bank and certain institutions it acquired mislead investors in connection with the packaging, marketing, sale and issuance of certain RMBS. They claimed the institutions’ employees knew that loans backing certain RMBS did not comply with underwriting guidelines and were not otherwise appropriate for securitization, yet allowed the loans to be securitized and sold without disclosing the alleged underwriting failures to investors.The agreement includes $9 billion in civil penalties and $4 billion in consumer relief. Of the civil penalty amount, $2 billion resolves DOJ’s claims under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), $1.4 billion resolves federal and state securities claims by the NCUA, $515.4 million resolves federal and state securities claims by the FDIC, $4 billion settles federal and state claims by the FHFA, while the remaining amount resolves claims brought by California ($298.9 million), Delaware ($19.7 million) Illinois ($100.0 million), Massachusetts ($34.4 million), and New York ($613.0 million). The bank also was required to acknowledge it made “serious misrepresentations.” The agreement does not prevent authorities from continuing to pursue any possible related criminal charges.
Report On CFPB's Auto Finance Forum
This morning, the CFPB hosted an auto finance forum, which featured remarks from CFPB staff and other federal regulators, consumer advocates, and industry representatives.
Some of the highlights include:
- Patrice Ficklin (CFPB) confirmed that the CFPB, both before issuing the March bulletin and since, has conducted analysis of numerous finance companies’ activities and found statistically significant disparities disfavoring protected classes. She stated that there were “numerous” companies whose data showed statistically significant pricing disparities of 10 basis points or more and “several” finance companies with disparities of over 20 or 30 basis points.
- Much of the discussion focused on potential alternatives to the current dealer markup system. The DOJ discussed allowing discretion within limitations and with documentation of the reasons for exercising that discretion (e.g., competition). The CFPB focus was exclusively on non-discretionary “alternative compensation mechanisms”, specifically flat fees per loan, compensation based on a percentage of the amount financed, or some variation of those. The CFPB said it invited finance companies to suggest other non-discretionary alternatives. Regardless of specific compensation model, Ms. Ficklin stated that in general, nondiscretionary alternatives can (i) be revenue neutral for dealers, (ii) reduce fair lending risk, (iii) be less costly than compliance management systems enhancements, and (iv) limit friction between dealers on the one hand and the CFPB on the other.
- There was significant debate over whether flat fee arrangements, or other potential compensation mechanisms, actually eliminate or reduce the potential for disparate impact in auto lending. There was also criticism of the CFPB’s failure to empirically test whether these “fixes” would result in other unintended consequences. Industry stakeholders asserted that such arrangements fail to mitigate fair lending risk market-wide while at the same time potentially increase the cost of credit and constrain credit availability. Industry stakeholders also questioned the validity of the large dollar figures of alleged consumer harm caused by dealer markups. When assessing any particular model, the CFPB’s Eric Reusch explained, finance companies should determine whether (i) it mitigates fair lending risk, (ii) creates any new risk or potential for additional harm, and (iii) it is economically sustainable, with sustainability viewed through the lens of consumers, finance companies, and dealers.
- Numerous stakeholders urged the CFPB to release more information about its proxy methodology and statistical analysis, citing the Bureau’s stated dedication to transparency and even referencing its Data Quality Act guidelines. The DOJ described its commitment to “kicking the tires” on its statistical analyses and allowing institutions to do the same. The CFPB referenced its recent public disclosure of its proxy methodology, noting that this was the methodology the CFPB intended to apply to all lending outside of mortgage.
- Steven Rosenbaum (DOJ) and Donna Murphy (OCC) pointedly went beyond the stated scope of the forum to highlight potential SCRA compliance risks associated with indirect auto lending.
Additional detail from each panel follows. Please note that these details are based on notes taken during the event and could differ from actual statements made during the event. The entire report is subject to alteration or clarification, particularly if a transcript or archived video are made available.
Opening Remarks
Director Cordray opened the forum. He stressed the importance of vehicles to individual consumers and to the broader economy. He stated that some consumers may be subject to discrimination that may result in millions of dollars in consumer harm each year.
As he did in a Senate hearing earlier this week, Mr. Cordray emphasized that neither the 2012 fair lending bulletin nor the March 2013 auto finance bulletin were new; they simply served as a reminder to finance companies of liability under ECOA, particularly with regard to indirect auto finance.
He stated that the CFPB uses proven statistical methods and publicly available data to assess the probability that a particular customer belongs to a particular racial group or is of a particular national origin.
The March bulletin provided guidance about steps auto finance companies might consider taking to ensure they are ECOA-compliant. One approach described by the Director is to develop robust fair lending compliance management systems to monitor for disparate impact and promptly remedy consumer harm on an ongoing basis when it is identified. The bulletin also stated that finance companies could take steps to comply with the law by adopting some other pricing mechanism that fairly compensates dealers for their work but avoids the fair lending risks that are inherent in pricing by discretionary markup. Director Cordray stated that such mechanisms include: a flat fee per transaction, or a fixed percentage of the amount financed, or other nondiscretionary approaches that market participants may devise that would work to address these concerns.
He acknowledged that dealers are entitled to fair compensation, but stressed that the CFPB wants to make sure the process is transparent. He stated it is worth considering further how the disclosure of markup practices actually works.
Panel 1
Patrice Ficklin (CFPB): Ms. Ficklin described and defended the March bulletin, asserting that the CFPB did not provide any new legal interpretations, but rather reminded finance companies about existing law. She noted and defended the CFPB’s proxy methodology, as described recently in letters to Congress, but did not provide additional detail. She stated that the CFPB’s supervisory and enforcement work in this area is more substantial than it was in March, and continues to indicate fair lending risk—the CFPB has found “substantial and statistically significant” disparities between African Americans, Hispanics, and Asians and similarly situated white borrowers. The CFPB has identified numerous institutions with disparities over 10 basis points, and several over 20 or 30 basis points.
Going forward, the CFPB is committed to continuing a constructive dialogue with industry, a dialogue in which alternative compensation structures has been the key theme to date.
Melissa Yap (FRB): Ms. Yap described the Fed’s ECOA authority post-Dodd-Frank. She stated that pricing remains the greatest area of risk. The Fed employs the 2009 interagency fair lending procedures and looks at (i) financial incentives, (ii) the amount of discretion, and (iii) disparities in note rate and markup over buy rate. She described the Fed’s proxy methodology, which differs slightly from the CFPB’s, but which the Fed believes is appropriate for the size and complexity of the institutions it supervises. For race, the Fed geocodes and defines majority-minority census tracts as those over 50%. She defended name proxies for gender and ethnicity, stating they are as likely to over count as under count. She also referenced two webinars the Fed and other hosted this year, which included discussion of these issues, see e.g., August webinar.
Steven Rosenbaum (DOJ): Mr. Rosenbaum described the DOJ’s broad authority to enforce ECOA and noted that it has a number of investigations ongoing, including joint investigations with the CFPB. He stated that Congress created the issue that requires the use of proxies, given that ECOA protects classes in consumer lending but does not require data collection similar to HMDA. The DOJ is using the CFPB’s method on joint investigations, but it continues to “kick the tires” on its methods and analyses and invites finance companies to do the same.
He stated, twice, that ECOA does not require nor prohibit discretion in pricing; risk from discretion can be managed, for example by setting caps or requiring justifications and documentation.
Mr. Rosenbaum added that the DOJ also enforces SCRA, and stated that if finance companies have not thought about SCRA compliance in their auto finance programs, they ought to do so. He also acknowledged the DOJ’s ongoing investigation of buy-here, pay-here dealers, though the issues differ in that those dealers may be offering predatory products in minority neighborhoods.
Keith Ernst (FDIC): Mr. Ernst similarly described the FDIC’s jurisdiction and addressed in broad terms its approach to indirect auto financing. He stated that all examination and statistical results that are consistent with a violation are subject to independent review and all statistical analyses are reviewed by a team. The FDIC provides institutions with the results, data, and methods and provides an opportunity for questions and other feedback. Mr. Ernst also noted that this dialogue includes providing institutions with the opportunity to provide non-discriminatory explanations for statistical disparities. According to Mr. Ernst, the FDIC has amended analyses as part of these processes. The FDIC believes the vast majority of its banks are effectively managing fair lending risk in auto finance, but that examinations can reveal compliance management systems concerns that fall short of a fair lending violation.
Tonya Sweat (NCUA): Ms. Sweat stated that the practices identified in the CFPB bulletin are not prevalent in the credit union industry, but NCUA still examines for fair lending risk and safety and soundness. The NCUA advises credit unions that sound practices include sampling and testing of loans, particularly to ensure third-party compliance. Credit unions should implement written policies that require written approval of any changes to underwriting criteria.
Donna Murphy (OCC): Ms. Murphy provided only brief comments, and generally referenced and incorporated what others had said on proxies. The OCC is revising and updating its methods for fair lending risk assessments and scoping based on changes in markets, the legal environment, and technology. These changes are intended to result in more consistency in examinations and the ability of the OCC to conduct more analysis across banks. For auto finance, the OCC is looking at how it gathers factors regarding use of third-parties. Ms. Murphy also noted the OCC’s attention to SCRA, stating that last year it revised examination procedures and enhanced examiner training for SCRA, including in auto finance, and that those enhancements are reflected in this year’s examination cycle.
Panel 2
The second panel was moderated by the CFPB’s Rohit Chopra and featured remarks from the National Association of Minority Automobile Dealers (NAMAD), the National Consumer Law Center (NCLC), the Consumer for Auto Reliability and Safety (CARS), and the NAACP.
Stuart Rossman from the NCLC described his part in a series of class actions against auto finance companies in the 2000s. Those actions, as he described, resulted in markup caps, the last of which sunsetted last year. He asserted that the market forces that led to those actions persist, as do fundamental problems in discretionary pricing policies. Citing more restrictive class action requirements and less access to critical data, he called on the CFPB to take the lead in enforcement.
NAMAD acknowledged the possibility that bad actors exist in the market, but argued against eliminating discretion. NAMAD called for approval and documentation requirements for discretionary programs. NAMAD supports uniform data collection, enhanced proxies, training and education for dealers and consumers.
CARS noted California’s markup cap statute and reported that a proposal for a ballot proposition outlawing dealer discretion has been filed with the state attorney general. CARS also encouraged the CFPB to look at the impact of percentage rate markups in the motor home market.
Panel 3
Bill Himpler, American Financial Services Association (AFSA): Mr. Himpler stressed that the current indirect auto finance model is efficient and proven. He noted that auto finance complaints are at record lows, and pointed out that even the CFPB’s database shows a small number of complaints compared to other markets. Since the CFPB has refused to assess the impact of a broad market shift towards flat fee compensation structures or other alternatives, AFSA is commissioning an independent study to assess the present model and evaluate costs and benefits of alternative models.
Chris Kukla, Center for Responsible Lending (CRL): Mr. Kukla countered that the current compensation model gives rise to potential discrimination and should be ended. Consumers have no ability to know what part of their rate is based on risk and what is due to compensation. He defended the CRL’s 2011 study on indirect auto finance from attacks, including those that followed Senator Warren’s reference to the study during a Senate hearing earlier this week. That study concluded that consumers pay $26 billion each year in markups. Mr. Kukla explained that CRL never said consumers would not otherwise be charged a portion of those fees, and only sought to define the size of the market. He referenced other research that indicates a market-wide adoption of flat fee arrangements would have little impact on dealers.
Paul Metrey, National Automobile Dealers Association (NADA): Mr. Metrey outlined a preferred approach by federal regulators to unintentional disparate impact discrimination: (i) understand the market, (ii) develop appropriate methods, and (iii) if present, address in a manner that assists consumers. He called for the CFPB to pursue more open processes on this issue, including by identifying its complete statistical methodology and fully accounting for neutral legitimate factors. He presented NADA’s case against flat fee arrangements, in part on the basis that dealers still will have discretion to select among finance sources that may offer different flat fee arrangements.
Rich Riese, American Bankers Association (ABA): Mr. Riese challenged the CFPB’s post hoc approach to obtaining input on its auto finance program, stating that the forum does not substitute for the kind of engagement the issue requires. He argued that the guidance should have been proposed and subject to notice and comment. The ABA believes proxies should be viewed with skepticism; they can be useful to identify risks and can be useful in compliance programs, but they should not be used to prove violations. Citing the 1999 interagency exam procedures, he argued that discretion is not an appropriate area to apply disparate impact, and, before straying too much from prior policy, regulators should recognize that Reg. B applies to creditors determination of creditworthiness and the discretion being applied in auto finance is for compensation and is not part of a creditor’s determination of creditworthiness.
The panelists also discussed the comparison of indirect auto finance to the mortgage market, particularly the use of broker yield spread premiums. Mr. Riese pointed out that in the mortgage context, brokers were alleged to have steered borrowers into “bad” loans without considering suitability; that is not the case in the auto market where there are no option arms, teaser rates, etc. Mr. Himpler and Mr. Metrey agreed. Mr. Metrey added that the comparison is apples to oranges—the markets have performed differently; there is nothing going on in auto ABS like there was in MBS. He added that Congress directed an end to yield spread premiums and there has been no similar action in auto, and the Fed tested to see if a fix was necessary but there has been no similar testing in auto.
Mr. Kukla responded that the mechanics may be different, but the impact and incentives are the same. A broader view of “steering” covers any instance in which a consumer is provided a loan with less advantageous terms than the consumer otherwise would have received.
DOJ, SEC Announce FCPA Actions Against U.S. ATM Maker
On October 22, the DOJ and the SEC announced parallel criminal and civil actions against a U.S. company for allegedly violating the FCPA by paying bribes and falsifying documents in connection with selling ATMs to bank customers in China, Indonesia, and Russia. The federal authorities allege that from 2005 to 2010 the company provided approximately $1.8 million of value to employees of its bank customers in China and Indonesia, including state-owned banks, in the form of payments, gifts, and non-business travel. The company allegedly attempted to disguise the benefits by routing the payments through third parties designated by the banks and by recording leisure trips for bank employees as “training” expenses. The government also alleges that from 2005 to 2009, the company entered into false contracts with a distributor in Russia for services that the distributor was not performing. Instead, the distributor allegedly used the approximately $1.2 million in payments to bribe employees of privately-owned Russian banks to secure ATM-related contracts for the company. The company entered into a deferred prosecution agreement with the DOJ, agreeing to pay a $25.2 million penalty, and it consented to a final judgment in the SEC action, pursuant to which it will disgorge approximately $22.97 million, inclusive of prejudgment interest. The company agreed to implement numerous specific changes to its internal controls and compliance systems and to retain a compliance monitor for at least 18 months. The government acknowledged the company’s voluntary disclosure, cooperation, and extensive internal investigation.
DOJ Secures Jury Verdict In First GSE Civil Fraud Suit
On October 23, a jury found a bank liable on one civil mortgage fraud charge arising out of a program operated by a lender the bank had acquired. The jury also found against a former executive of the acquired lender. The verdict followed a four week trial in the first DOJ case alleging violations of the FCA and FIRREA in connection with loans sold to Fannie Mae and Freddie Mac. Judge Jed Rakoff of the Southern District of New York will consider briefing on the penalty—the DOJ originally had sought damages close to $1 billion. The bank stated that it will evaluate its options for an appeal. For more information about the government’s expanding FCA/FIRREA civil fraud initiative, please visit our resource center.
Special Alert: Agencies Issue Joint Statement On Fair Lending Compliance And The CFPB's ATR/QM Rule
On October 22, the CFPB, the OCC, the FDIC, the Federal Reserve Board, and the NCUA (collectively, the Agencies) issued a joint statement (Interagency Statement) in response to inquiries from creditors concerning their liability under the disparate impact doctrine of the Equal Credit Opportunity Act (ECOA) and its implementing regulation, Regulation B by originating only “qualified mortgages.” Qualified mortgages are defined under the CFPB’s January 2013 Ability-to-Repay/Qualified Mortgage Rule (ATR/QM Rule). The DOJ and HUD did not participate in the Interagency Statement.
The Interagency Statement describes some general principles that will guide the Agencies’ supervisory and enforcement activities with respect to entities within their jurisdiction as the ATR/QM Rule takes effect in January 2014. The Interagency Statement does not state that a creditor’s choice to limit its offerings to qualified mortgage loans or qualified mortgage “safe harbor” loans would comply with ECOA; rather, the Agencies state that they “do not anticipate that a creditor’s decision to offer only qualified mortgages would, absent other factors, elevate a supervised institution’s fair lending risk.” Furthermore, the Interagency Statement will not necessarily preclude civil actions.
The Agencies acknowledge that although there are several ways to satisfy the ATR/QM Rule, some creditors may be inclined to originate all or predominantly qualified mortgages, particularly when the ATR/QM Rule first becomes effective. In selecting business models and product offerings, the Agencies “expect that creditors would consider and balance demonstrable factors that may include credit risk, secondary market opportunities, capital requirements, and liability risk.” The Agencies further understand that creditors may have a “legitimate business need” to fine-tune their product offerings over the next few years in response to the impact of the ATR/QM Rule, just as they have in response to other significant regulatory changes that have occurred in the past.
The Agencies advise creditors to continue to evaluate fair lending risk as they would for other types of product selections, including by carefully monitoring their policies and practices and implementing effective compliance management systems. Nonetheless, the Agencies state that individual cases will be evaluated on their own merits.
The Agencies state that they “believe that the same principles…apply in supervising institutions for compliance with the Fair Housing Act.” However, because neither DOJ nor HUD participated in issuing the Interagency Statement, it remains to be seen how those agencies would view this issue.
It is noteworthy that the standard articulated in the Interagency Statement (“legitimate business needs”) differs from HUD’s disparate impact rule relating to the Fair Housing Act. In its rule, HUD codified a three-step burden-shifting approach to determine liability under a disparate impact claim. Once a practice has been shown by the plaintiff to have a disparate impact on a protected class, the rule states that the defendant would have the burden of showing that the challenged practice “is necessary to achieve one or more substantial, legitimate, nondiscriminatory interests of the respondent…or defendant…A legally sufficient justification must be supported by evidence and may not be hypothetical or speculative.” (Emphasis added.)
Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.
- Jeffrey P. Naimon, (202) 349-8030
Former Maxwell Technologies Executive Indicted on FCPA Charges
On October 15, the DOJ filed an indictment against a Swiss national and former executive at Maxwell Technologies—a U.S.-based energy storage and power-delivery company—for alleged violations of the FCPA. The DOJ claims that over a more than six-year period the former executive engaged in a conspiracy to make and conceal payments to Chinese government officials in order to obtain and retain business, prestige, and increased compensation for his company. This individual action follows a 2011 action by the DOJ and the SEC against the company based on the same allegations and which the company agreed to resolve for $13.65 million.
Bank Holding Company Resolves Federal Mortgage Claims
On October 10, a bank holding company announced that it has agreed in principle, on behalf of itself and certain affiliates, to resolve mortgage-related allegations by the federal government. The company reached agreements in principle with HUD and the DOJ to settle (i) certain civil and administrative claims arising from FHA-insured mortgage loans originated over a six-and-a-half year period and (ii) certain alleged civil claims regarding the company’s mortgage servicing and origination practices as part of the National Mortgage Servicing Settlement. Pursuant to the agreements in principle, the company committed to $500 million of consumer relief, a $468 million cash payment, and the implementation of certain mortgage servicing standards. The company also reached an agreement in principle with the Federal Reserve Board to impose a $160 million civil monetary penalty, in conjunction with an April 2011 Consent Order.
Justice Department Announces Three Fair Lending Actions
Recently, the DOJ released information regarding three fair lending actions, all three of which included allegations related to wholesale lending programs. On September 27, the DOJ announced separate actions—one against a Wisconsin bank and the other against a nationwide wholesale lender—in which the DOJ alleged that the lenders engaged in a pattern or practice of discrimination on the basis of race and national origin in their wholesale mortgage businesses. The DOJ charged that, during 2007 and 2008, the bank violated the Fair Housing Act and ECOA by granting its mortgage brokers discretion to vary their fees and thus alter the loan price based on factors other than a borrower’s objective credit-related factors, which allegedly resulted in African-American and Hispanic borrowers paying more than non-Hispanic white borrowers for home mortgage loans. The bank denies the allegations but entered a consent order pursuant to which it will pay $687,000 to wholesale mortgage borrowers who were subject to the alleged discrimination. The allegations originated from an FDIC referral to the DOJ.
The DOJ charged the California-based wholesale lender with violations of the Fair Housing Act and ECOA, alleging that over a four-year period, the lender’s practice of granting its mortgage brokers discretion to set the amount of broker fees charged to individual borrowers, unrelated to an applicant’s credit risk characteristics, resulted in African-American and Hispanic borrowers paying more than non-Hispanic white borrowers for home mortgage loans. The lender did not admit the allegations, but agreed to enter a consent order to avoid litigation. Pursuant to that order the lender will pay $3 million to allegedly harmed borrowers. The order also requires the lender to take other actions including establishing race- and national origin-neutral standards for the assessment of broker fees and monitoring its wholesale mortgage loans for potential disparities based on race and national origin.
Finally, on September 30, the DOJ announced that a national bank agreed to resolve certain legacy fair lending claims against a thrift it acquired several years ago, which the bank and the OCC identified as part of the acquisition review. Based on its own investigation following the OCC referral, the DOJ alleged that, between 2006 and 2009, the thrift allowed employees in its retail lending operation to vary interest rates and fees, and allowed third-party brokers as part of its wholesale lending program to do the same, allegedly resulting in disparities between the rates, fees, and costs paid by non-white borrowers compared to similarly-situated white borrowers. The bank, which was not itself subject to the DOJ’s allegations, agreed to pay $2.85 million to approximately 3,100 allegedly harmed borrowers to resolve the legacy claims and avoid litigation.
Federal Authorities Announce Two BSA/AML Enforcement Actions
This week, federal authorities announced the assessment of civil money penalties against two financial institutions for alleged Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance failures. In the first action, FinCEN and the OCC alleged that a national bank failed to file suspicious activity reports (SARs) from April 2008 to September 2009 for activity in accounts belonging to a law firm through which one of the firm’s principals ran a Ponzi scheme. The agencies claim that the bank willfully violated the BSA’s reporting requirements by failing to detect and adequately report suspicious activities in a timely manner, even when the bank’s anti-money laundering surveillance software identified the suspicious activity (the bank subsequently filed five late SARs related to this conduct in 2011). FinCEN and the OCC assessed concurrent $37.5 million penalties. The FinCEN penalty is the first assessed by that agency’s recently created Enforcement Division. In addition, the SEC charged the bank and a former executive with related securities violations and ordered the bank to pay an additional $15 million penalty and to cease and desist from the alleged activity, including providing misleading information to investors as to amounts of money in particular accounts and actions the bank had taken to limit fraudulent activity.
In a second action, coordinated among FinCEN, the OCC, and the U.S. Attorney for the District of New Jersey, federal authorities assessed $8.2 million in total penalties against a now defunct community bank for compliance failures related to Mexican and Dominican Republic money exchange houses. The government alleged that the bank willfully violated the BSA by (i) failing to implement an effective AML program reasonably designed to manage risks of money laundering and other illicit activity, (ii) failing to conduct adequate due diligence on foreign correspondent accounts, and (iii) failing to detect and adequately report suspicious activities in a timely manner. FinCEN and the OCC assessed concurrent $4.1 million penalties, and the DOJ will collect an additional $4.1 million through civil asset forfeiture.