FinCEN’s new Enforcement Division, which was created in June of 2013, is already making its mark in the financial enforcement world.
Federal regulators are focusing on compliance with Bank Secrecy Act (“BSA”) and anti-money laundering (“AML”) laws and regulations.
On September 23, 2013, FinCEN, the Securities and Exchange Commission and the Comptroller of the Currency (“OCC”) assessed a $37.5 million penalty against TD Bank for failure to file suspicious activity reports relating to a Ponzi scheme committed by a Florida attorney.
TD Bank’s failure to file SARs related to various attorney trust accounts which were used to conduct fraudulent transactions. FinCEN noted that the bank’s policies, procedures, and training regarding trust accounts had been inadequate. The bank’s AML surveillance software alerted employees of the suspicious activity and the bank filed five late SARs relating to the massive Ponzi scheme.
In another enforcement action, FinCEN, the OCC and the USAO-New Jersey assessed a $4.1 million penalty against a Saddle River Valley Bank for failing to maintain an effective AML program, failing to conduct adequate due diligence on foreign correspondent accounts, and failing to file SARs.
Saddle River Bank executed $1.5 billion worth of transactions on behalf of Mexican and Dominican exchange houses despite a specific FinCEN advisory warning of risks of dealing with these institutions. The bank failed to file SARs.
These recent enforcement actions highlight the importance of financial institutions implementing robust SARS review and filing procedures. A bank only has to suspect or have reason to suspect illegal activity related to a transaction to trigger a potential SARs filing. Monitoring procedures are critical to identify and analyze potential suspect transactions.
A transaction is “suspicious” if the transaction: (1) involves funds derived from illegal activities, or is conducted to disguise funds derived from illegal activities; (2) is designed to evade the reporting or recordkeeping requirements of the BSA or implementing regulations; or (3) has no business or apparent lawful purpose or is not the sort in which the customer would normally be expected to engage, and the bank knows of no reasonable explanation for the transaction after examining the available facts.
BSA/AML compliance requires financial institutions to invest in technology, training, auditing and monitoring systems. The bank’s risk profile should dictate the resources committed to BSA/AML and OFAC compliance programs.
Compliance programs should be designed to evaluate a customer’s specific risk profile along with the nature of the transaction. Due diligence and monitoring systems should be keyed to a combined measure of these two variables so that high-risk transactions are identified and evaluated. A SARs committee can provide an objective and consistent assessment of individual transactions to ensure that SARs are filed in appropriate situations.