Texas Bank Faces $2M Fine From FinCEN

by Manatt, Phelps & Phillips, LLP
Contact

Manatt, Phelps & Phillips, LLP

The Financial Crimes Enforcement Network (FinCEN) hit a Texas bank with a $2 million Assessment of Civil Money Penalty for Bank Secrecy Act and anti-money laundering (BSA/AML) violations of Section 312 of the USA PATRIOT Act related to a correspondent relationship with a Mexican bank.

What happened

The privately held community bank—located in Pharr, TX, with more than $2.2 billion in assets and 28 branch locations—admitted to the facts set forth in the regulator’s Assessment of Civil Money Penalty that it willfully violated the BSA’s program and reporting requirements from 2010 through 2014. More specifically, the bank failed to establish and implement an adequate AML program, conduct required due diligence on a foreign correspondent account and report suspicious activity.

“[The bank’s] failures in these areas allowed a single foreign financial institution to move hundreds of millions of U.S. dollars in suspicious bulk cash shipments through the U.S. financial system in less than two years,” according to the Assessment.

As set forth by the BSA and implementing regulations, banks are required to develop and provide for the continued administration of an AML program reasonably designed to assure and monitor compliance with the BSA’s recordkeeping and reporting requirements.

But the Texas bank had repeated deficiencies, FinCEN said, including failing to collect and analyze information necessary to assess each customer’s risk and to develop and implement specific customer risk profiles; neglecting to identify the intended purpose of the customer’s account, the anticipated activity within the account, the nature of the customer’s business, the types of bank products and services used by the customer, and geographic indicators of risk; and failing to appropriately risk-rate certain of its customers during the account opening process.

The bank had knowledge of these deficiencies and did not correct them, FinCEN added. An external auditor found that information was missing or incorrect for 37 out of 50 accounts reviewed in a testing sample in 2014, while the bank had 4,888 outstanding alerts, 627 cases and 213 internal referrals during the period from January through November 2014.

Other problems occurred with the due diligence requirements for correspondent accounts for foreign financial institutions. Between May 2010 and November 2011, the bank provided U.S. currency bulk cash deposit and other correspondent banking services to a large financial institution headquartered in Mexico. “During this time period, the bank allowed approximately $260 million to flow through the foreign bank’s account without sufficient controls in place to detect and report suspicious activity,” FinCEN wrote.

The errors began with the account opening process, when the bank failed to identify well-known and public information about the principal owner of the foreign bank (who had agreed to pay civil penalties to the U.S. Securities and Exchange Commission to resolve allegations of securities fraud) or verify the accuracy of assertions from the foreign bank regarding the source of funds, purpose and expected activity.

Despite red flags, the bank further failed to adequately investigate increasing cash deposits of U.S. dollars and unusual wire activity in the account. For example, at the account opening, the foreign bank stated that monthly deposits of U.S. currency would be in amounts from $8 million to $9 million, with $3 million to $4 million expected to remain in the account. In reality, the deposits were two to three times greater—but the bank conducted no investigation into the cause.

In addition, the foreign bank requested a substantial number of wire transfers with the date of the transaction embedded into the dollar amount of the transfer (a wire transfer conducted on June 3 would be in the amount of $1,000,003.06). “[The bank] did not identify the issue in monitoring and could provide no explanation for what appeared to be a suspicious pattern embedded in each outgoing wire transfer to match the date it was sent,” according to the Assessment.

Further BSA/AML violations occurred when the bank did not file Suspicious Activity Reports (SARs), FinCEN said. Based on a review ordered by the Office of the Comptroller of the Currency (OCC) as part of an earlier enforcement action, the bank was required to file 161 SARs, 69 related directly to cash structuring and 92 related to other types of suspicious activity, representing approximately $131 million in previously unreported suspicious activity.

The bank addressed the BSA/AML deficiencies through “significant measures” recommended by both FinCEN and the OCC, with updated policies on due diligence measures and account opening procedures. The bank closed its accounts with the foreign bank and modified its customers and services to mitigate money laundering risks of certain accounts. New senior management and board level committees were formed to ensure the implementation and maintenance of the new plans.

Given these changes—and the bank’s cooperation with the regulator—FinCEN assessed a $2 million civil penalty, with $1 million partially satisfied by a payment already made to the OCC in 2015.

To read the Assessment of Civil Money Penalty, click here.

Why it matters

Announcing the Assessment, FinCEN sounded a cautionary note. “The action underscores the dangers that institutions face when taking on international correspondence activities without properly equipping themselves to manage such business,” the regulator wrote in a statement. “Smaller banks, just like the bigger ones, need to fully understand and follow the 312 due diligence requirements if they open up accounts for foreign banks,” added FinCEN Acting Director Jamal El-Hindi. “The risks can indeed be managed, but not if they are ignored.”

 

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.

© Manatt, Phelps & Phillips, LLP | Attorney Advertising

Written by:

Manatt, Phelps & Phillips, LLP
Contact
more
less

Manatt, Phelps & Phillips, LLP 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):
hide

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.

Security

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 info@jdsupra.com. 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: info@jdsupra.com.

- 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.