Why it matters

Three Financial Crimes Enforcement Network (FinCEN) orders, three sets of fines and asset forfeitures, a deferred prosecution agreement and one bank enforcement action demonstrate the resolve of the Department of Justice, FinCEN, and federal and state regulators to ensure that different financial institutions comply with their suspicious activity report (SAR) and currency transaction report (CTR) filings and other Bank Secrecy Act (BSA) requirements.

Detailed discussion

State Street: In the course of the most recent inspection of State Street Corporation and the examination of State Street Bank and Trust, the Federal Reserve Bank of Boston (Boston Fed) and the Commonwealth of Massachusetts Division of Banks (Division) identified deficiencies in the holding company’s firmwide compliance risk management programs with respect to compliance with BSA and anti-money laundering (AML) requirements and the bank’s compliance with BSA/AML and Office of Foreign Assets Control (OFAC) requirements, including internal controls, customer due diligence procedures, and transaction monitoring processes were all lacking, the Boston Fed and Division found.

To rectify the situation, the regulators and the two entities entered into a written agreement with a goal to establish, on a firmwide basis, the implementation of effective compliance risk management programs for BSA/AML and OFAC that are commensurate with the bank’s compliance risk profile and that the two entities operate in compliance with applicable BSA/AML and OFAC requirements.

The agreement lays out a number of steps the parties will take to “ensure that compliance risk is effectively managed … including within and across business lines, support units, and legal entities.” In addition to the usual litany of remedial actions in such agreements, the agreement provides for a revised program for suspicious activity monitoring and reporting that includes, at a minimum, policies and procedures to ensure that all necessary customer and transactional data are collected from across all business lines with the data aggregated into an appropriate transaction monitoring system.

The two entities also agreed to submit, within 45 days of the agreement, a plan for “full installation, testing, and activation of an effective automated transaction monitoring system.” Finally, the bank was required to undertake a three-month look-back of account and transaction activity for the period of April 1, 2013, through June 30, 2013. Depending on an evaluation of these results, additional review of prior such activity may be directed.

To read the agreement between State Street and the regulators, click here.

FinCEN announced three enforcement actions since the beginning of June. The first involved a small money transmitter, the second involved a casino and the third involved a West Virginia bank that was also the subject of a deferred prosecution agreement.

King Mail & Wireless/Ali Al Duais: In addition to imposing a civil money penalty of $12,000 for not filing SARs or filing late SARs, FinCEN prohibited the owner from further participation in financial services for ignoring his AML compliance obligations. The company was engaged in processing what was deemed “high risk” transactions involving millions of dollars in wires to Yemen. The owner agreed to “immediately and permanently cease serving as an employee, officer, director, or agent of any financial institution located in the United States or that conducts business within the United States.” The business has ceased operations as well.

Tinian Dynasty Hotel & Casino: For what was deemed by FinCEN as “egregious Anti-Money Laundering violations,” the casino on Northern Mariana Islands has been assessed a $75 million civil money penalty. FinCEN noted the casino operated for years without an AML compliance program (no policies, procedures or controls; no compliance officer; no training; no independent testing), failing to file more than 2,000 CTRs and willfully facilitating suspicious transactions, and “even provid[ing] helpful hints for skirting and avoiding the laws of the U.S. and overseas.” Its actions were deemed “a real threat to the financial integrity of the region and U.S. financial system.” The FinCEN press release states that when the chief auditor was ask about the unfiled CTRs, he said he “assumed that filing them was a low priority because nobody ever noticed that they were not being filed.” Undercover agents posed as casino patrons during the criminal investigation.

Bank of Mingo: Following criminal prosecution of a bank employee and bank customers, the Bank of Mingo on June 15 entered into a one-year deferred prosecution agreement with the U.S. Department of Justice and agreed to a $2.2 million asset forfeiture. The FDIC also imposed a civil money penalty of $3.5 million. And not to be left out, FinCEN imposed a $4.5 million civil money penalty, with $3.5 million effectively offset by the funds paid pursuant to the DOJ and the FDIC agreements.

These actions follow an FDIC consent order in November 2013, in which the Bank of Mingo was directed to conduct, among other things, a more than six-year look-back for suspicious activity in the deposit account and transaction activity of all high-risk customers.

The Bank of Mingo was charged by the DOJ with failing to develop, implement and maintain an effective AML program. The DOJ agreed to defer prosecution for 12 months to allow the bank to demonstrate its acceptance of responsibility and to take remedial actions for “past, wrongful conduct.” The actions at issue involved the failure to detect and report unusual and large cash transactions by agents and employees of a bank customer, which the DOJ alleged was structuring transactions to stay below the $10,000 threshold for filing CTRs.

FinCEN noted that $9 million in structured transactions were conducted and that the Bank of Mingo did not file CTRs or SARs on the transactions. FinCEN cited deficiencies in all aspects of the bank’s AML program for a 5-year period and that it failed to properly designate high-risk customers and accounts and failed to adequately monitor and detect the unusual currency transactions or suspicious activities of these customers.

The U.S. attorney prosecuting the case said, “These are not just simply technical violations. Illegal structuring enables and helps to conceal larger criminal schemes. Had Bank of Mingo maintained an effective anti-money laundering program, other criminal activity might have been nipped in the bud.”

“This bank’s failure to implement and maintain an effective AML program exposed our financial system to significant abuse,” noted FinCEN Director Jennifer Shasky Calvery. “And, when a bank insider actively promotes a culture of noncompliance, the risks are greatly increased.”