Repeat violations of the Bank Secrecy Act (BSA) are cited by the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) for a $1 million penalty against a casino and a $10,000 fine against a money services business (MSB) and its owner. In both cases, there are lessons for all entities subject to the BSA and their compliance officers.

What happened

The MSB's path to a civil money penalty began with a 2009 exam by the Internal Revenue Service (IRS).

In the MSB case, Thriftway Food Mart in Lexington, Kentucky, sold money orders and performed check cashing services, cashing approximately $1 million worth of checks each month. The 2009 examination found systemic anti-money laundering (AML) program violations, as well as recordkeeping and reporting violations. FinCEN issued a warning letter to Thriftway and its owner, Kustandy Rayyan, advising them that the regulator expected them "to implement appropriate corrective actions to ensure a satisfactory AML program" and that "the Bank Secrecy Act compliance history of [Thriftway] will be factored into any matters that come to our attention in the future."

In 2013, when the regulators returned to Thriftway to conduct a follow-up examination, they found that Rayyan and the MSB had continued to violate the BSA's program and reporting requirements.

FinCEN found that the MSB had failed to establish and implement an effective written anti-money laundering program by failing to implement policies, procedures, and internal controls reasonably designed to assure ongoing compliance, failing to designate an adequate compliance officer, failing to provide adequate training, and failing to conduct independent testing of its compliance program. It also failed to file accurate and timely currency transaction reports (CTRs).

FinCEN noted that even after an examiner had assisted the owner in drafting a written AML program during the 2009 exam, the owner failed to implement a program that satisfied even the minimum requirements. Moreover, the program had not been updated to include regulatory changes to BSA regulations and failed to implement its program as written. FinCEN also noted that "Mr. Rayyan informed examiners during the 2009 examination that he did not request identification from his regular customers because he feared losing their business." Likewise, training was nonexistent at Thriftway, either for employees or for Rayyan, who had designated himself as the AML compliance officer for his company. In addition, FinCEN noted that the 2009 examination indicated that Thriftway had never conducted an independent review and although examiners instructed Rayyan to do so at that time, there was no independent review until March 2013—after the regulators started their follow-up examination.

FinCEN criticized Rayyan's effort as a compliance officer, noting that "During the 2013 exam, Mr. Rayyan was unfamiliar with various parts of Thriftway's AML program. . . ." For example, during an interview with examiners, he claimed to have forgotten that the AML program provided for an independent review. Moreover, Mr. Rayyan stated that he believed that the AML program manual covered only money order sales, and not check cashing activities—a remarkable fact given that Thriftway's money order sales averaged between $10,000 and $16,000 every month, while check cashing accounted for about a million dollars each month.

Thriftway found that of the 43 CTRs filed by the MSB, more than one-third of those were filed late and 95 percent of them were filed with incomplete or inaccurate information, including "critical identification information" such as a Social Security number, type and number of identification reviewed, and date of birth. Thriftway also failed on multiple occasions to aggregate transactions conducted by or on behalf of the same individual that totaled more than $10,000 in any one business day and neglected to file 12 CTRs for reportable cash transactions during the examination scope.

In the casino case, Sparks Nugget, Inc., was assessed a $1 million civil money penalty in connection with violations of the BSA incurred by the casino it operated until its sale in 2013. The casino was cited for a lack of a culture of compliance. In particular, the person designated for managing the compliance functions was "routinely disregarded" by management even after management had been informed that BSA compliance was "too much for one person to handle." FinCEN's order cites a number of ways in which the employee was ignored and management's instructions not to talk to examiners during an examination.

FinCEN also noted that the casino had sophisticated information systems that were used for gathering large amounts of information about customers for business risk management and marketing purposes but was not used for BSA/AML compliance purposes. It said, "Sparks Nugget's willful failure to take advantage of the valuable information about its customers that it was already gathering and using to improve its profit and minimize its business risks contributed to the casino's failure to file required Suspicious Activity Reports (SARs) and Currency Transaction Reports (CTRs)."

Why it matters

FinCEN continues to focus on repeated shortcomings in the compliance efforts of entities subject to the BSA, from establishing and implementing an effective written AML program to a complete lack of training and independent testing to unsatisfactory efforts with regard to filing reports and required recordkeeping.

To read the Assessment of Civil Money Penalty in In the Matter of: Rayyan, click here.

See also In the Matter of Sparks Nugget, Inc. d/b/a John Ascuaga's Nugget Sparks, Nevada.