Bank

Subscribe to Bank

And a Tale of Four Countries: Singapore Fines a U.K. Bank, and the U.S. Imposes a Consent Order on a Chinese Bank

Less than a week apart, two major financial institutions (“FIs”) have been hit with penalties for failing to implement adequate anti-money laundering (“AML”) protections. But the penalties imposed by the involved regulators are different.  In this post, we report on the enforcement actions recently lodged against Standard Chartered PLC and the Industrial & Commercial Bank of China Ltd. by the Monetary Authority of Singapore and the United States Federal Reserve, respectively.  We also consider the approaches of these two regulators to the banks and the differing outcomes of the enforcement actions.

Continue Reading A Tale of Two Enforcement Actions

Second Part in a Two-Part Series

The Tale of an AML BSA Exam Gone Wrong

As we have blogged, the Ninth Circuit Court of Appeals recently upheld the decision of the Board of Directors of the Federal Deposit Insurance Corporation (“FDIC”) to issue a cease and desist order against California Pacific Bank (the “Bank”) for the Bank’s alleged failure to comply with Bank Secrecy Act (“BSA”) regulations or have a sufficient plan and program in place to do so.

In our first post, we described how the Ninth Circuit rejected the Bank’s constitutional challenge to the relevant regulation, and accorded broad deference to the FDIC in its interpretations of its own regulations, expressed in the form of the Federal Financial Institutions Examination Council Manual (“FFIEC Manual”).  This post discusses the Court’s review of the Bank’s challenge under the Administrative Procedures Act to the FDIC’s factual findings of AML program failings.

The California Pacific opinion provides a significant piece of guidance for banks questioning the adequacy of its BSA compliance program: consult and abide the FFIEC Manual.  Furthermore, it demonstrates that no shortcuts are permitted when it comes to establishing and maintaining a BSA compliance program.  The BSA and the FDIC’s regulations contain firm guidelines and the FFIEC Manual puts banks of all sizes on notice of what compliance is expected of them.  The independence of both the AML compliance officer and of testing; adequate risk assessments of customer accounts; and the correction of prior regulator findings of AML deficiencies are key. Continue Reading Ninth Circuit Court of Appeals Outlines BSA Compliance Obligations and How One Small Bank Failed to Meet Them

Court Defers Heavily to the FDIC and the FFIEC Manual

First Part in a Two-Part Series

The Ninth Circuit Court of Appeals recently upheld the decision of the Board of Directors of the Federal Deposit Insurance Corporation (“FDIC”) to issue a cease and desist order against California Pacific Bank (the “Bank”) for the Bank’s alleged failure to comply with Bank Secrecy Act (“BSA”) regulations or have a sufficient plan and program in place to do so.

This decision, California Pacific Bank v. FDIC, provides a nearly step-by-step analysis of what is required of banks under the BSA and a vivid illustration of an Anti-Money Laundering (“AML”) program that did not pass muster in the eyes of a regulator.  It highlights the general rules that banks of all sizes, but particularly smaller community banks, must keep in mind concerning their compliance programs – size does not matter and you are on notice of what compliance entails.

Importantly, and before upholding the FDIC’s factual findings regarding the Bank’s violations, the Ninth Circuit first rejected the Bank’s claim that the regulation at issue (which required the Bank to implement an AML compliance program which complied with the “four pillars” of such a program) was unconstitutionally vague. Moreover, the Ninth Circuit found that the FDIC has broad discretion when interpreting this regulation, described by the Court as “ambiguous.”

This post will summarize the case and the key role played by the Federal Financial Institutions Examination Council Manual (“FFIEC Manual”) in both the Court’s rejection of the constitutional challenge and the broad deference which the Court accorded to the FDIC and its interpretation of its own regulations.  The second post will turn to the Bank’s alleged AML program failings and the Bank’s challenges to the FDIC’s many factual findings. Continue Reading Ninth Circuit Court of Appeals Rejects Constitutional Challenge to AML Compliance Program Regulation

But Bank Customer’s Foreign Tax Evasion Scheme Still May Merit a SAR FilingThe Financial Crimes Enforcement Network (“FinCEN”) recently advised that a financial institution is not required to file a Suspicious Activity Report (“SAR”) based solely upon a customer’s inquiry into or participation in a foreign tax regularization program.  FinCEN issued this statement on February 21, 2018 in response to Florida International Banker’s Association’s request for guidance (“FIBA Request”) in 2016, which initiated the request because a number of its members expressed an interest in tax regularization programs and sought clarification on the AML implications of such programs.

This issue, perhaps seemingly esoteric, involves a basic question of increasing practical importance, particularly in light of the Panama Papers related international scandals, and global criticism of the U.S. as a potential haven for foreign tax cheats and money launderers: does the possibility of foreign tax evasion by a bank client necessarily trigger the need to file a SAR? Foreign tax evasion can represent potential violations of U.S. law, such as the federal mail or wire fraud statutes, which in turn may support a prosecution theory that related financial transactions involving foreign tax evasion and the U.S. financial system represent potential U.S. money laundering violations (for a detailed article on this issue, please see here). Continue Reading FINCEN Advises That Participation in a Foreign Tax Regularization Program By Itself Does Not Trigger SAR Filing Obligation

Alleged Illicit Activity Included Transactions Promoting North Korea’s Missile Program and an Institutional Commitment to Laundering Money

On February 13, 2018, FinCEN announced that it had proposed a special measure naming ABLV Bank, AS (“ABLV”) an institution of primary money laundering concern pursuant to Section 311 of the USA Patriot Act.  We previously have blogged about FinCEN’s powers pursuant to Section 311 of the U.S. Patriot Act to designate institution “of primary money laundering concern” and impose a special measure which effectively cuts off the bank’s access to the U.S. financial system by requiring U.S. institutions as well as foreign institutions that create an indirect link between the foreign institution and the U.S. to sever ties with the designated bank.

Finding that ABLV was a foreign financial institution of primary money laundering concern, FinCEN proposed a prohibition under the fifth special measure restricting domestic financial institutions from opening or maintaining correspondent accounts with or on behalf of ABLV. FinCEN stated that ABLV executives, shareholders, and employees have institutionalized money laundering as a pillar of the bank’s business practices by orchestrating money laundering schemes, soliciting high-risk shell company activity that enables the bank and its customers to launder funds, maintaining inadequate controls over high-risk shell company accounts, and seeking to obstruct enforcement of Latvian anti-money laundering and combating the financing of terrorism (AML/CFT) rules in order to protect these business practices.  Indeed, included in the illicit financial activity were transactions for parties connected to the U.S. and U.N.-designated entities, some of which are involved in North Korea’s procurement or export of ballistic missiles.

ABLV shot back last Thursday stating that the allegations were based “on assumptions and information that is currently unavailable to the bank,” but that they were “continuing check into these allegations” and were open to cooperation with U.S. authorities.  As a result of FinCEN’s finding, Monday morning, the European Central Bank (“ECB”) halted all payments by ABLV pending further investigation into the allegations set forth in FinCEN’s Notice of Proposed Rulemaking (“NPRM”). Continue Reading FinCEN Imposes Section 311 Fifth Special Measure on Latvian Bank ABLV

Second Post in a Two-Part Series

As we blogged earlier this week, Congress is considering a new draft bill, the Counter Terrorism and Illicit Finance Act (“CTIFA”), in committee in the Senate.  The CTIFA proposes the most substantial overhaul to the Bank Secrecy Act (“BSA”) since the PATRIOT Act.

We previously discussed CTIFA’s proposed requirement for legal entities to submit to FinCEN a list their beneficial owners (“BOs”) and the creation of a central directory of these BOs. Today, we discuss CTIFA’s many other major proposed revisions to the BSA. These include:

  • Raising the minimum monetary thresholds for filing Currency Transaction Reports (“CTRs”) and Suspicious Activity Reports (“SARs”), and requiring a review of how those filing requirements could be streamlined;
  • Expanding the prohibition against disclosing SAR-related information to third parties, including in private litigation;
  • Codifying absolute civil immunity for SAR filing;
  • Expanding the scope of voluntary information sharing among financial institutions;
  • Allowing FinCEN to issue no-action letters; and
  • A grab-bag of other proposals, including a safe harbor for AML-related technological innovation; requiring a review of whether FinCEN should assume a greater role in AML/BSA examinations of financial institutions; requiring a review of the costs to the private sector for AML/BSA compliance; and requiring an annual report to the Secretary of the Treasury (“the Secretary”) regarding the usefulness of BSA reporting to law enforcement.

Continue Reading Congress Contemplates Broad AML/BSA Reform

Last week, the Office of the Comptroller of the Currency (“OCC”) released its semiannual risk report (“Report”) highlighting credit, operational, and compliance risks to the federal banking system.  The Report focuses on issues that pose threats to those financial institutions regulated by the OCC and is intended to be used as a resource to by those financial institutions to address the key concerns identified by the OCC.  Specifically, the OCC places cybersecurity and Anti-Money Laundering (“AML”) among the top concerns highlighted in the Report.  The Report further observes that the total number of enforcement actions by the OCC against banks — instituted for any kind of alleged violations — have declined steadily after peaking in 2009. Continue Reading OCC Report: Cybersecurity and Money Laundering Threats are the Key Risks Facing Banks

Mexico City’s downtown and Palacio de Bellas Artes building at twilight

Last week, the Financial Action Task Force (“FATF”) issued a report concluding that Mexico needs to “step up efforts in pursuing money launderers.” The report, which summarized the FATF’s findings from its on-site assessment in early 2017, identified three particularly weak areas in Mexico’s AML regime:  preventative measures; investigation and prosecution; and confiscation.  This post summarizes the report’s findings, and observes that Mexico is not the only nation needing to “step up” its efforts.  Further, given the strong financial and geographic ties between Mexico and the U.S., the AML challenges of Mexico can be the challenges of the U.S. Continue Reading Mexico’s AML Regime Evaluated by the FATF: Systemic Improvement, but Suspicious Transaction Reporting and Law Enforcement Efforts Continue to Struggle

FinCEN recentlty announced entry of a $2 million assessment against Lone Star National Bank, a private bank operating out of Texas, for the bank’s allegedly willful violations of the Bank Secrecy Act (“BSA”) and inadequate Anti-Money Laundering (“AML”) monitoring programs.  The primary violations relate to Lone Star’s alleged failure to comply with due diligence requirements imposed by Section 312 of the USA PATRIOT Act in establishing and conducting its correspondent banking relationship with a Mexican bank.  As a result of Lone Star’s insufficient due diligence and AML program, the Mexican bank was “allowed to move hundreds of millions of U.S. dollars in suspicious cash shipments through the U.S. financial system in less than two years.”  The FinCEN’s announcement warns that this “action underscores the dangers that institutions face when taking on international correspondence activities without properly equipping themselves” to manage the enhanced obligations that arise with such relationships.

This new FinCEN assessment underscores the continued regulatory interest in the AML risks presented by correspondent banking relationships. We therefore first will provide a brief overview of correspondent banking relationships and the enhanced regulatory attention often paid to them. Armed with this context, we then will analyze the findings and lessons learned from the Lone Star assessment, including the value touted by FinCEN of Lone Star’s efforts to cooperate with its own investigation. Further, this new assessment suggests that the U.S. government does not always present a consistent voice regarding correspondent banking relationships: although the U.S. Treasury has tried to encourage financial institutions in general to not “de-risk” and thereby terminate correspondent banking relationships, we see that enforcement agencies continue to penalize institutions in individual cases for not mitigating sufficiently the risks of correspondent banking. Continue Reading FinCEN Fines Texas Bank $2M for Alleged Failure to Vet and Monitor Mexican Correspondent Banking Relationship – But Touts Bank’s Cooperation