On Monday August 22, 2011, the FDIC, Treasury’s Financial Crimes Enforcement Network (“FinCEN”) and Florida’s Office of Financial Regulation announced civil money penalties of $10.9 million and a two-year deferred prosecution agreement against Ocean Bank (“the Bank”) in Miami, FL. The penalty represents approximately seven percent of the Bank’s book value. Authorities took action because the Bank failed to maintain adequate Bank Secrecy Act (“BSA”) and Anti-Money Laundering (“AML”) safeguards even after entering into a Cease and Desist Order in 2007 related to non-compliance with the Bank’s BSA/AML programs.
Where Was Ocean Bank Deficient?
The Bank failed to maintain some the basic elements of an effective BSA/AML program. The Bank was aware of the high level of risks associated with its deposit base, and yet ignored red flags that indicated its client may have been laundering money through their accounts. Twenty-eight percent of the Bank’s customers lived in foreign countries designated as “high-risk geographies susceptible to money laundering.” Nevertheless, the Bank failed to address or report suspicious or unusual activity in multiple accounts, such as:
abnormally large cash deposits (up to $140,000) unsupported by the customer’s business model; deposits of thousands of sequentially ordered money orders and travelers checks; hundreds of incoming wire transfers originating from Mexican casa de cambios; and same day incoming and outgoing wire transfers in large round dollar amounts. The Bank was relying on manual monitoring of 85 percent of its accounts. For the 15 percent of accounts that were monitored automatically, the Bank apparently ignored the alerts generated by the computer programs. The Bank did not independently audit its BSA/AML compliance methods, and it maintained a significant backlog of required reports.
Ocean Bank may be an extreme example of an institution’s failure to maintain an effective BSA/AML program, but the Government’s action serves to remind every U.S. financial institution that BSA/AML compliance is an essential part of an effective banking business model. We are seeing FinCEN’s increasing role in civil and criminal matters when financial institutions fail to maintain effective anti-money laundering programs. Financial institutions must maintain effective BSA/AML programs that adapt over time. These programs should be audited, updated and appropriately staffed.