On Monday, the Financial Crimes Enforcement Network, or FinCEN, announced a $7MM Civil Monetary Penalty (CMP) against Merchants Bank of California for failing to establish an adequate AML program, perform due diligence on foreign correspondent accounts and to detect and report suspicious transactions. The Assessment notes that the bank’s willful misconduct ran from March 2012 through September of last year.
As per the news release:
Merchants’ failures allowed billions of dollars to flow through the U.S. financial system without effective monitoring to adequately detect and report suspicious activity. Many of these transactions were conducted on behalf of money services businesses (MSBs) that were owned or managed by Bank insiders who encouraged staff to process these transactions without question or face potential dismissal or retaliation. Bank insiders directly interfered with the BSA staff’s attempts to investigate suspicious activity related to these insider- owned accounts.
Merchants failed to provide the necessary level of authority, independence, and responsibility to its BSA officer to ensure compliance with the BSA as required, and compliance staff was not empowered with sufficient authority to implement the Bank’s AML program. Merchants’ leadership impeded BSA analysts and other employees from investigating activity on transactions associated with accounts that were affiliated with Bank executives, and the activity in these accounts went unreported for many years. Merchants’ interest in revenue compromised efforts to effectively manage and mitigate its deficiencies and risks.
In addition, Merchants banked customers located in several jurisdictions considered to be high- risk but did not identify these customers as foreign correspondent customers and therefore did not implement the required customer due diligence program. In a three-month period, Merchants processed a combined $192 million in high-risk wire transfers through some of these accounts.
The Assessment notes that Merchants held the accounts of 44 money transmitters and 165 check cashing concerns. It also contains much more gory details, such as the lack of a designated BSA officer, late or non-existent SAR filings, and inadequate training and independent testing.
The OCC also assessed a $1MM CMP, which will be deemed satisfied by the FinCEN one – and issued its own press release. Also, the FinCEN press release notes that a settlement does not preclude additional enforcement actions against firms or individuals associated with them.