Sterling Bank’s ex-General Counsel hit with OCC Cease-and-Desist over Longstanding BSA/AML Shortcomings

The Volkov Law Group

The Volkov Law Group

[author: Sam Finkelstein]

The Treasury Department’s Office of the Comptroller of the Currency (“OCC”) has taken action against the former General Counsel of Michigan-based Sterling Bank and Trust in the agency’s latest action against an individual corporate officer for failure to maintain an adequate Bank Secrecy Act (“BSA”) compliance program.

Between 2012 and 2023, Colleen Kimmel was employed in various compliance-related capacities at Sterling Bank, including as General Counsel from 2016-2023. During this time, Sterling rolled out its Advantage Loan Program (“ALP”) a so-called ‘low-document’ residential loan programs that quickly became one of the bank’s top lending products.

As early as 2017, Kimmel had information that at least suggested that all was not well with the ALP. According to OCC, Kimmel had reason to believe that Sterling Bank had originated false or fraudulent ALP loans. The fraud was systemic and widespread; DOJ secured the convictions of a former Managing Director and two former Loan Officers at Sterling in 2021 for their roles in the scheme, which involved falsifying documents and materially misrepresenting borrowers’ qualifications. In effectuating their scheme, the three criminal defendants also took steps to undermine Sterling Bank’s, and in turn, Ms. Kimmel’s, ability to implement effective internal controls to detect their misconduct.

During the life of their conspiracy, these individuals extended approximately $876 million in credit on Sterling’s behalf, earning themselves millions in commissions. As the Wells Fargo ‘fake account’ scandal showed, and the Sterling Bank situation confirms, incentivizing volume in banking tends to cause real compliance headaches later on.

Back to Ms. Kimmel. According to DOJ’s press release announcing the convictions mentioned above, the conspirators actively stymied Kimmel’s ability to surveil their suspicious activity. DOJ further reported that Sterling Bank’s senior management knew and approved of the falsification of loan documents––chasing after increased revenues––which certainly did not make Kimmel’s job any easier. And OCC backs up this account, describing how “others at the Bank told [Kimmel] they were investigating certain information and constrained [her] ability to act” and recounting that Kimmel “lacked the authority to engage external counsel or incur expenses without” the CEO’s approval.

But despite her lack of culpability, OCC’s Cease and Desist Order is targeted at Kimmel. The rationale is simple: the buck must stop somewhere, and in banking, it stops with Compliance. Kimmel, as General Counsel, was responsible for BSA Compliance at Sterling Bank. Under her watch, bad actors were given access to the U.S. financial system and permitted to extend nearly a billion dollars in questionable loans. As such, and even if others deliberately stood in her way, Kimmel was responsible for making sure this did not happen. OCC’s Cease and Desist serves to memorialize her failure.

Irrespective of the obstructive actions of others, OCC took issue with the fact that Kimmel failed to ensure that the bank investigate suspicions about the ALP program. Indeed, OCC found no evidence that Kimmel even suggested that the board undertake such investigative action until 2019. Due to the failure of anyone to investigate these concerns, Kimmel and Sterling Bank did not discover or report suspicious activity related to ALP loans in a timely manner as required by the BSA. Likewise, and for related reasons, OCC also found that Kimmel and Sterling did not ensure that the Bank’s BSA program had an adequate system of internal controls.

While OCC’s Cease and Desist is not a criminal conviction and carries with it no financial penalties, it is a professional albatross and should give pause to compliance professionals nonetheless. As OCC’s recent Consent Order with Blue Ridge Bank reflects, BSA/AML compliance enforcement is a regulatory priority for 2024. Learning from OCC’s action against Kimmel and Sterling Bank, banking compliance professionals should––for their own sake, and that of our financial system––assess whether they are equipped with the tools and authority necessary in order to do their jobs effectively. Such reviews should happen regularly and be followed by swift corrective action where appropriate.

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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