Why it matters

In a coordinated effort, the U.S. government identified another “poster child” to demonstrate its continued vigilance and earnestness in pursuing lax BSA/AML procedures and oversight and violations of law. In this instance, a very small West Virginia bank was assessed a very large penalty for its failures. In concurrent actions against West Virginia’s Bank of Mingo, the Financial Crimes Enforcement Network assessed a civil money penalty of $4.5 million, the Department of Justice settled criminal charges with a deferred prosecution agreement providing for $2.2 million in asset forfeiture, and the Federal Deposit Insurance Corporation assessed $3.5 million in civil penalties. According to the regulators, the bank committed violations of the Bank Secrecy Act (BSA) as well as anti-money laundering (AML) laws and regulations by failing to implement an effective BSA/AML compliance program over an “extended period of time,” resulting in “unacceptable risk” in terms of illicit financial transactions. Bank of Mingo also intentionally failed to file required currency transaction reports and neglected to file suspicious activity reports, the regulators said, allowing more than $9.2 million in structured and otherwise suspicious cash transactions to pass through the financial institution unreported. The $2.2 million forfeiture offsets portions of both of the other penalties; the remaining $2.3 million will be paid to the Treasury.

Detailed discussion

Bank Secrecy Act (BSA) and anti-money laundering (AML) failures continue to trip up banks across the country. In the latest example, the Department of Justice (DOJ), the Federal Deposit Insurance Corporation (FDIC), and the Financial Crimes Enforcement Network of the U.S. Treasury (FinCEN) brought concurrent actions against a small bank in West Virginia.

Headquartered in Williamson, West Virginia, the Bank of Mingo has six branches and a total of 48 employees, with $93.879 million in assets as of December 31, 2014. The bank also had systemic BSA and AML violations, the regulators said.

Based on the bank’s failure to establish and maintain BSA/AML and customer due diligence programs, Mingo’s deficiencies “led to its failure to monitor, detect and report suspicious activity and to timely file currency transaction reports,” according to FinCEN’s Assessment of Civil Money Penalty order.

FinCEN highlighted four areas where the bank “willfully violated” its obligations from 2008 through the end of 2013: the failure to implement an adequate AML program; the failure to develop and implement an adequate customer identification program; the failure to identify and adequately report currency transactions; and the failure to detect and adequately report suspicious transactions.

Mingo had an AML program in place, but it lacked a customer identification program appropriate for its size and business, FinCEN said, and had insufficient internal controls. For example, although the bank used a software system to monitor its accounts for unusual activity, it did not use the system to detect and report suspicious activity. Also, Mingo did not properly rate its customers and their respective accounts, leaving the bank unable to monitor high-risk individuals.

Although Mingo designated a BSA Officer, the employee was also assigned multiple non-BSA responsibilities, leaving him unable to adequately fulfill his BSA obligations. Training for bank employees was “ineffective,” and independent testing on the bank’s AML program neglected to consider many of the appropriate controls needed.

Turning to Mingo’s Customer Identification Program, FinCEN determined it was inadequate and failed to meet even the most basic requirements. At a minimum, financial institutions are required to obtain a customer’s name, date of birth, and a residential or business street address when a new account is opened. A review of Mingo’s opening account documentation revealed that 26 percent of the accounts were opened with a P.O. Box instead of the required physical street address.

Also on the bank’s list of failures: neglecting to file currency transaction reports (CTRs). During the relevant time period, Mingo failed to file 619 CTRs in violation of the BSA and its implementing regulations, FinCEN charged. Of the 619, 438 were related to a single corporate customer, who was allowed to open a $50,000 line of credit. The account was used for payroll and bank employees would prepare cashier’s checks for the corporate customer’s workers. Over a four-year period, the corporate customer made 981 cash withdrawals averaging $9,417, just under the $10,000 currency reporting requirements, totaling over $9.2 million.

“Despite the high volume of unusual cash transactions conducted by the corporate customer, Mingo failed to timely file 438 CTRs relating to the cash intensive transactions and structured transactions conducted through the bank,” FinCEN said.

Compounding the problem: the BSA Officer monitored such activity through handwritten teller logs, “an inadequate control given the volume of cash activity going through the bank.”

Finally, the regulator found that Mingo failed to file suspicious activity reports (SARs) for a high volume of cash transactions with no apparent lawful purpose designed to evade BSA reporting requirements. In addition to the corporate customer referenced in the bank’s CTR failures, two other customers also demonstrated unusual transaction patterns that should have raised significant red flags for the bank, FinCEN said. One of the customers opened an account using a P.O. Box address and then made frequent and unusually large cash deposits and withdrawals; in one quarter in 2013, the cashed checks totaled $431,000.

For these willful violations of the AML requirements of the BSA, FinCEN assessed Mingo a civil penalty of $4.5 million. The penalty runs concurrent with the FDIC’s $3.5 million penalty, of which $2.2 million is concurrent with the amount forfeited pursuant to the deferred prosecution agreement with the U.S. Attorney’s Office for the Southern District of West Virginia.

To reach the deal with the DOJ, Mingo admitted that it failed to establish an effective AML program and that a bank employee facilitated structured transactions to evade the filing of CTRs. Although the bank was aware of the structuring scheme, it failed to file either the requisite CTRs or SARs, it acknowledged.

The bank was ordered to pay the remaining $2.3 million to the U.S. Treasury.

To read the FDIC’s Order to Pay, click here.

To read FinCEN’s Assessment of Civil Money Penalty, click here.