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

Third in a Three-Part Series of Blog Posts

Many Keys to AML Information Sharing

This blog focuses on suggested improvements to information sharing between financial institutions, and between financial institutions and governments, to better combat money laundering and terrorist financing. As we recently blogged, the Royal United Services Institute (“RUSI”) for Defence and Security Studies — a U.K. think tank – has released a study:  The Role of Financial Information-Sharing Partnerships in the Disruption of Crime (the “Study”).  The Study focuses on international efforts — including efforts by the United States — in reporting suspicious transactions revealing criminal activity such as money laundering and terrorist financing.  The Study critiques current approaches to Anti-Money Laundering (“AML”) reporting and suggests improvements, primarily in the form of enhanced information sharing among financial institutions and governments.

In our first blog post in this series, we described some of the criticisms set forth by the Study regarding the general effectiveness of current suspicious activity reporting.  These critiques related to an ever-increasing amount of SAR filings, coupled in part with a lack a feedback by governments to the filing institutions regarding what sort of information was considered by law enforcement to be actually useful.  In our second post, we discussed the current landscape of AML information sharing in the United States, which is governed by Section 314 of the Patriot Act, and is an important component of many financial institutions’ ability to fulfill successfully their AML obligations.  This third and final blog post pertaining to the Study examines its findings and proposals for developing effective public–private financial information sharing partnerships (“FISPs”) in order to better detect, prevent, and combat money laundering and terrorist financing.  Observing that modern financial crime “operates in real time, is most often international in scale and can be highly sophisticated ad adaptive to avoid detection,” the Study generally posits that AML systems ideally should include real-time and cross-border information sharing. Continue Reading Combatting Money Laundering and Terrorist Financing Through Enhanced AML Information Sharing