FinCEN issues $1.5 million Penalty against Pennsylvania Bank for AML Violations

Blank Rome LLP

On February 26, 2015, the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) issued an assessment of a civil money penalty totaling $1,500,000 against First National Community Bank (“FNCB”), which is located in Dunsmore, Pennsylvania. The penalty was issued in conjunction with the Office of the Comptroller of the Currency, which is FNCB’s primary regulator. The penalty was premised on FNCB’s failure to file suspicious activity reports (“SARs”) stemming from the “Kids for Cash” scandal.
The “Kids for Cash” scandal involved payoffs that two state court judges received. The payoffs were made by an operator of a juvenile detention facility. The two judges, Mark Ciavarella and Senior Judge Michael Conahan, sentenced thousands of juveniles to excessive terms of incarceration for petty crimes. In exchange, they received payments from the facility operator. Conahan pleaded guilty and Ciavarella was convicted after a jury trial. Conahan had received $2,600,000 in bribes. He was sentenced to a term of 17.5 years.

FinCEN’s assessment of a civil money penalty against FNCB was premised on the bank’s anti-money laundering violations. Conahan had banked at FNCB. The notice focused on three “red flags” missed by the bank: (1) a law enforcement subpoena submitted in 2007 for information related to Conahan and other individuals and entities; (2) activity occurring as early as 2005, involving many large, round-dollar transactions often occurring on a single day; and (3) an abnormal volume of activity compared to account balances.

According the assessment, Conahan deposited the bribe proceeds into a business bank account for company named Pinnacle. The agency took FNCB to task for not taking note that in 2005, Conahan purchased a condominium as an investment and then refinanced the unit three months later. According the assessment, Conahan reported a substantial increase in the condominium and was able to perform a “cash out” refinancing. Further, FinCEN’s assessment stated: “From 2004 to 2005, Conahan’s and Ciavarella’s incomes nearly quadrupled, purportedly as a result of rental income from the condominium purchased through Pinnacle.” FinCEN also noted that the size, frequency, and type of deposits into the Pinnacle account should have also alerted regulators.

In a press release announcing the assessment, Jennifer Shasky Calvery, the director of FinCEN, said: “FNCB’s failure to file timely suspicious activity reports may have deprived law enforcement of information valuable for tracking millions of dollars in related corrupt funds.”

According to Bloomberg, Conahan sat on the FNCB’s board. Attorneys for the bank told Bloomberg that bank officials were unaware of Conahan’s role in the “Kids for Cash” scandal. “The way his account was viewed is the way any judge’s account would be viewed and it is unfair to imply that his account would be handled differently with regard to whether he was on the board,” the bank’s attorney told the wire service.

Given the isolated nature of the account, one has to wonder whether FinCEN’s decision to take an enforcement action stemmed from the fact that Conahan was a member of FNCB’s board. The penalty appears disproportionate to the financial side of the transaction. Given Conahan’s abuse of trust, it is hard to quantify the true harm that he caused.

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.

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