I can’t say it any better than FinCEN does – here’s the press release:
And some color from the assessment:
Lone Star willfully violated the BSA’s program and reporting requirements from 2010 to 2014.4 As described below, Lone Star failed to (a) establish and implement an adequate anti- money laundering (AML) program; (b) conduct required due diligence on a foreign correspondent account; and (c) report suspicious activity. Lone Star’s failures in these areas allowed a single foreign financial institution to move hundreds of millions of U.S. dollars in suspicious bulk cash shipments through the U.S. financial system in less than two years. This activity began just three months before the Mexican government imposed regulations restricting Mexican bank transactions in U.S. currency and dramatically increased after the regulations became effective. Without sufficient internal controls or experienced BSA staff, the Bank engaged in high-risk foreign correspondent banking services without conducting appropriate due diligence, and without adequately monitoring and reporting suspicious activity.
At times previous to 2010 and continuing from 2010 through 2014, Lone Star had repeated deficiencies and failures in implementing adequate risk-based procedures for conducting customer due diligence. Lone Star consistently failed to collect and analyze information necessary to assess each customer’s risk and to develop and implement specific customer risk profiles. Lone Star failed to identify the intended purpose of the customer’s account, the anticipated activity within the account, the nature of the customer’s business, the types of bank products and services used by the customer, and geographic indicators of risk. As a result, Lone Star failed to risk rate appropriately certain of its customers during the account opening process, which was necessary for proper monitoring of transactions conducted through the accounts. Significantly, the Bank did not correctly identify or monitor new and existing high-risk accounts that posed an elevated risk for money laundering at the Bank. Lone Star had knowledge of these deficiencies but failed to correct them for several years.
For example, in October 2014, Lone Star maintained a significant number of high-risk accounts with missing customer due diligence information. Lone Star’s management failed to identify the missing information. An external auditor noted that information was missing or incorrect for 37 out of 50 accounts reviewed in a testing sample. Among the missing or incorrect information were indicators that actual activity in the accounts differed substantially from what was predicted. These failures impeded Lone Star’s ability to monitor transactions for suspicious activity. The Bank had an inadequate process for reviewing and escalating its AML alerts and investigations. Lone Star’s policies and procedures failed to provide adequate guidelines for reviewing and escalating alerts. During the period from January 2014 through November 2014, Lone Star had 4,888 outstanding alerts, 627 cases, and 213 internal referrals. The Bank’s failure to implement an adequate due diligence and customer risk rating process severely limited the effectiveness of Lone Star’s AML program.
During account opening, Lone Star failed to identify well known and public information about the principal owner of the Foreign Bank. Specifically, public source material revealed that the President and principal owner of the Foreign Bank agreed to pay civil penalties to the U.S. Securities and Exchange Commission in resolving allegations of securities fraud. Lone Star should have collected and analyzed this information prior to account opening.
Lone Star failed to verify the accuracy of assertions from the Foreign Bank regarding source of funds, purpose, and expected activity. Initially, the Foreign Bank indicated that the source of the U.S. bulk currency was from extensive foreign exchange (“FX”) operations from United States/Mexico border regions. However, after the account had been operating for several months, the Foreign Bank stated that, at that time, it was actually selling more U.S. dollars than it was buying at these border regions, and the U.S. bulk cash deposited at Lone Star had always been coming from Mexico City. Lone Star never requested further explanation to validate the accuracy of inconsistent statements concerning the source of funds. In another example, Lone Star’s BSA Officer indicated that the cash shipments to Lone Star were attributable to remittances from the United States sent (via money transmitters) to family members residing in Mexico, who then used funds to repay consumer microloans. Money transmitters in Mexico, especially those operating in rural areas, rarely provide their customers with U.S. dollars. And there was no indication from the Foreign Bank that the microloans that it offered to consumers were payable in U.S. dollars. Lone Star did not sufficiently manage the money laundering risks inherent in foreign correspondent banking services by failing to properly collect, identify, and document the source of funds and the type, purpose, and anticipated activity of the Foreign Bank relationship.
Lone Star failed to adequately investigate increasing cash deposits of U.S. dollars and unusual wire activity. The transactions raised serious red flags given the Mexican Ministry of Finance’s (Secretaría de Hacienda y Crédito Público de México) June 2010 announcement of AML regulations designed to restrict the amounts of physical cash (banknotes and coins) denominated in U.S. dollars that Mexican banks may receive. FinCEN has provided ample guidance on bulk cash repatriation. In 2006, FinCEN issued an advisory on the repatriation of currency smuggled into Mexico from the United States.13
Actual activity differed substantially from anticipated activity. The Foreign Bank stated at account opening that monthly deposits of U.S. currency would be in amounts from $8 million to $9 million, of which $3 million to $4 million were expected to be kept in the account at Lone Star. However, U.S. dollar deposits at Lone Star ended up being two to three times greater than the anticipated amount. Lone Star noted the difference but conducted no investigation into the cause.
The Foreign Bank anticipated holding $3 million to $4 million at Lone Star each month. The remaining balance would be wired to U.S. financial institutions for the stated purpose of enabling the Foreign Bank to “liquidate [its] FX operations.” However, the Foreign Bank followed each bulk cash deposit with an immediate request for an outgoing wire transfer to an account in the Foreign Bank’s name at other U.S. financial institutions. The Foreign Bank would replenish the account by conducting additional deposits with further immediate outgoing wire transfers to accounts held by the Foreign Bank at other U.S. financial institutions.
Moreover, a substantial number of wire transfers requested by the Foreign Bank embedded the date the transaction was conducted in the dollar amount of the wire transfer itself. For example, a wire transfer conducted on the 3rd of June reflected that date in the final digits of its total amount of $1,000,003.06. Lone Star did not identify the issue in monitoring and could provide no explanation for what appeared to be a suspicious pattern embedded in each outgoing wire transfer to match the date it was sent. Lone Star’s failure to implement an adequate monitoring system prevented the Bank from noticing and fully reviewing this suspicious pattern in its wire transfer activity.
The Foreign Bank transported large and unexpected amounts of U.S. currency, deposited the currency at Lone Star and immediately sent outgoing wire transfers to accounts held by the Foreign Bank at other U.S. financial institutions. In 18 months of transaction activity, the Foreign Bank conducted a total of 63 bulk cash deposits of U.S. currency, followed by a total of 73 outgoing wire transfers. The Foreign Bank deposited at Lone Star approximately $260 million during 18 months of transaction activity, $100 million over the anticipated amount. Lone Star terminated its banking relationship with the Foreign Bank and closed its account in 2011, after the OCC raised serious concerns with the relationship.