Anti-Money Laundering Update: FinCEN Makes Small Texas Bank Pay Big Fine for Violating Bank Secrecy Act

by Bass, Berry & Sims PLC

Bass, Berry & Sims PLC

This Post at a Glance:

  • FinCEN imposes $2 million penalty against community bank
  • Bank failed to conduct appropriate due diligence related to Mexican customer
  • Small banks, other financial institutions need to recognize obligations under Bank Secrecy Act

On October 27, 2017, the U.S. Financial Crimes Enforcement Network (FinCEN) announced a $2 million fine against Lone Star National Bank, an independent community bank in Texas, for “willfully violating” anti-money laundering (AML) requirements of the Bank Secrecy Act (BSA).  FinCEN, which is part of the U.S. Treasury Department, has a primary role in safeguarding the U.S. financial system against money laundering and other illicit uses.

FinCEN: Lack of Due Diligence Leads to Bank Secrecy Act Violations 

According to FinCEN, Lone Star accepted a Mexican bank as a customer without conducting any significant due diligence on the bank or its owner.  FinCEN asserted that, if diligence had been conducted, Lone Star would have discovered the owner’s alleged involvement in securities fraud.  FinCEN also determined that Lone Star had opened and operated other high-risk accounts without conducting appropriate due diligence.

This is a problem under the BSA.  Under the regulations issued to implement the BSA, U.S. financial institutions must perform due diligence and, in some cases, enhanced due diligence, with regard to correspondent accounts established or maintained for non-U.S. financial institutions and private banking accounts established or maintained for non-U.S. persons.

Bank Secrecy Act Compliance Necessitates Policies to Avoid Money Laundering Activities

According to FinCEN, the Mexican bank moved hundreds of millions of U.S. dollars in suspicious bulk cash shipments through the U.S. financial system in less than two years.  FinCEN asserted that the movement of such large amounts of money should have alerted Lone Star of the need for greater scrutiny.  Yet according to FinCEN, Lone Star never verified the accuracy of the Mexican bank’s assertions as to the source of funds, account purpose, or anticipated activity.

The BSA implicitly acknowledges that huge amounts of money flow through the U.S. financial system every day.  Correspondingly, financial institutions are required to establish appropriate, risk-based policies designed to enable them to detect and report known or suspected money laundering activities.  According to FinCEN, Lone Star failed to ask even obvious diligence questions to the Mexican bank and did not follow up on inconsistencies in the answers to the few questions it did ask.

Lone Star has apparently gotten the message.  In announcing the penalty, FinCEN acknowledged that Lone Star has now ended its problematic correspondent banking activities.  FinCEN also highlighted the fact that Lone Star has engaged outside consultants to conduct independent testing and to focus on customer due diligence and reviews of suspicious activity.

Key Takeaway #1: Size Does NOT Excuse Financial Institutions from Complying with the Bank Secrecy Act

Especially for community and other local banks, the Lone Star matter serves as a valuable reminder that small size is not a defense to financial crimes under the BSA or other U.S. laws.  FinCEN specifically stressed that Lone Star’s size did not excuse its failure to comply with the BSA.

The action against Lone Star is also a useful reminder to those financial institutions that are covered by the BSA but are not banks.  For example, certain broker dealers and commodities traders are considered to be “covered financial institutions” under the BSA, and thus, have the same diligence obligations as Lone Star.

Key Takeaway #2: Maintain Robust Policies and Procedures to Avoid BSA and other AML Violations

This action provides more evidence that the U.S. government is continuing to aggressively enforce its AML and other financial crimes laws.  (See here for another penalty FinCEN announced earlier this year.)  There is no indication this enforcement initiative will change any time soon.  Banks and other financial institutions need to act accordingly, and ensure their policies and processes are adequate to meet BSA standards and protect against money laundering.

The author would like to thank Nicole Giles, a Bass, Berry & Sims legal intern based in our Washington, D.C. office, for her assistance in drafting this post.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Bass, Berry & Sims PLC | Attorney Advertising

Written by:

Bass, Berry & Sims PLC

Bass, Berry & Sims PLC on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.