A series of recent federal enforcement actions targeting weaknesses in financial institutions’ Bank Secrecy Act/anti–money laundering (BSA/AML) compliance programs continued on June 15, when the Department of Justice (DOJ), Financial Crimes Enforcement Network (FinCEN), and Federal Deposit Insurance Corporation (FDIC) announced a coordinated enforcement against West Virginia’s Bank of Mingo. The bank entered a deferred prosecution agreement with DOJ under which it admitted to the conduct charged and agreed to forfeit $2.2 million. The FDIC assessed $3.5 million in civil money penalties for BSA/AML violations, offset by the forfeiture to DOJ, and FinCEN assessed a civil monetary penalty of $4.5 million, offset by both the FDIC penalty and the forfeiture.
In its agreement with DOJ, the Bank of Mingo acknowledged that its client Aracoma Contracting, LLC, which supplied contract labor to mining operations, structured at least $2.2 million in cash transactions out of the bank’s Williamson branch between January 2009 and April 2012, and that the bank failed to detect and report these transactions. In a related plea agreement, Aracoma admitted that it paid its employees in cash in order to avoid employment taxes and that it generated the necessary cash by making withdrawals in amounts less than $10,000 from Mingo. The manager of the bank’s branch in Williamson facilitated the scheme by advising Aracoma’s principals to request advances against a line of credit and to have specific Aracoma employees pick up the cash. The branch manager himself approved some of the requests, after which the identified employees would sign cashier’s checks prepared by Mingo in order to collect the cash. Mingo failed to file currency transaction reports and suspicious activity reports based on these structured transactions.
According to FinCEN, Mingo had significant deficiencies in “all aspects” of its BSA/AML program from 2008 to 2013 and failed to appropriately designate certain customers and accounts as “high risk” or to detect and report suspicious transactions undertaken by those customers.
Mingo operates in six locations in West Virginia. The coordinated enforcement actions against it show that even smaller financial institutions face scrutiny and potentially large monetary sanctions, as well as criminal charges, for deficiencies in their BSA/AML compliance programs. In the case of Mingo, the charges centered on the actions of a single customer and a single branch manager, but the bank ultimately admitted to criminal conduct and paid $4.5 million in penalties, a significant sum in light of its total assets.
The Mingo case is a marked example of the dangers inherent in any financial institution’s failure to establish and maintain a satisfactory BSA/AML compliance program, as defined by the bank regulatory agencies. In this case, investigators identified criminal wrongdoing involving money laundering committed by a bank client with the aid of a bank employee and tied that investigation to deficiencies and weaknesses in Mingo’s BSA/AML program. These identified deficiencies harmed the bank in two distinct but related respects. First, had Mingo’s BSA/AML compliance program been more robust, Mingo quite likely would have identified the bank employee’s engagement in wrongdoing early on and either minimized the harm to the bank or prevented the wrongdoing from happening altogether. Second, even if the wrongdoing had occurred, a strong BSA/AML program would likely have insulated the bank from criminal prosecution and hefty regulatory fines.
While public enforcement actions brought by bank regulatory agencies against large financial institutions have been on the upswing over the past five years, growing and midsize financial institutions like Mingo have also recently found themselves subject to intensified regulatory examination, resulting at times in public enforcement actions. Earlier this year, a regional bank entered into a public consent order in which the U.S. Comptroller of the Currency found deficiencies in the internal controls, independent testing, and oversight pillars of the bank’s BSA/AML program so severe as to result in a finding that the program was operating in violation of federal statute and regulations. And while it is not currently facing charges, a Miami bank with a history of AML violations is identified in the recent FIFA-related indictments as having been used by a South American sports marketing business that allegedly bribed FIFA officials for contracts.