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  • Federal Reserve fines Taiwanese bank $29 million for anti-money laundering compliance deficiencies

    Financial Crimes

    On January 17, the Federal Reserve Board (Fed) ordered a Taiwanese bank to pay a $29 million penalty in connection with alleged Bank Secrecy Act and anti-money laundering (BSA/AML) violations. According to the Fed’s Order, examinations conducted in 2016 identified “significant deficiencies” in three of the bank’s U.S. branches’ BSA/AML compliance and risk management controls. In addition to assessing a penalty, the Order required the bank and its New York, Chicago, and San Jose branches to, among other things, (i) submit a written plan from the board of directors for improving senior management oversight, including building a sustainable governance framework for BSA/AML compliance; (ii) submit compliance plans for enhanced internal controls, independent testing, risk assessment, and employee training; (iii) submit a revised program designed to conduct customer due diligence; (iv) ensure timely, accurate, and complete suspicious activity monitoring and reporting; (v) engage an independent third-party to review the identification and reporting of suspicious activity “involving high risk customers or transactions”; (vi) comply with Office of Foreign Assets Control regulations; and (vii) submit periodic progress reports to the branches’ applicable Federal Reserve Banks detailing actions taken to comply with the provisions of the order.

    Financial Crimes Federal Reserve Anti-Money Laundering Bank Secrecy Act Bank Compliance International OFAC SARs

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  • Senate Banking Committee: the impact of cryptocurrency in AML/BSA enforcement

    Financial Crimes

    On January 17, the Senate Committee on Banking, Housing, and Urban Affairs held a second hearing with witnesses from the Treasury and Justice departments to further address the need to modernize and reform the Bank Secrecy Act and anti-money laundering (BSA/AML) regime. The hearing, entitled “Combating Money Laundering and Other Forms of Illicit Finance: Administration Perspectives on Reforming and Strengthening BSA Enforcement,” follows a January 9 hearing before the same Committee on related issues (see previous InfoBytes coverage here). Committee Chairman Mike Crapo, R-Idaho, opened the hearing by stating the need to understand the government’s position on “strengthening enforcement and protecting the integrity of the U.S. financial system in a new technological era,” while also recognizing the challenges technology creates for law enforcement. A primary topic of interest to the Committee was “the rise of cryptocurrencies and their potential to facilitate sanctions evasion and perhaps, other crimes.”

    The first witness, Treasury’s undersecretary for terrorism and financial crimes, Sigal Mandelker (testimony), noted that money laundering related to cryptocurrencies is “an area of high focus” for Treasury, and highlighted actions taken by Treasury’s Financial Crimes Enforcement Network (FinCEN), such as the release of guidance announcing that “virtual currency exchangers and administrators” are subject to regulations under the BSA. Regulated entities, Mandelker stated, are required to file suspicious activity reports (SARs) and are subject to FinCEN and IRS examinations and enforcement actions. Mandelker further commented that Treasury is “aggressively tackling” illicit financing entering the U.S. system and elsewhere, and stressed that other countries face consequences if they fail to have an AML/Combating the Financing of Terrorism regime that meets Treasury standards.

    The second witness, DOJ acting deputy assistant attorney general M. Kendall Day (testimony), informed the Committee of the recent hiring of a digital currency counsel who is responsible for ensuring prosecutors are up-to-date on the latest money-laundering threats in the digital currency field. Day also commented on recent DOJ prosecutions in this space, and emphasized the need for enhanced information sharing for law enforcement, including the benefit of deriving information from SARs.

    Financial Crimes Senate Banking Committee Department of Treasury DOJ Anti-Money Laundering Bank Secrecy Act Fintech Cryptocurrency Virtual Currency FinCEN SARs Enforcement

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  • OCC highlights supervisory priorities in fall 2017 semiannual risk report

    Federal Issues

    On January 18, the OCC announced the release of its Semiannual Risk Perspective for Fall 2017, identifying key risk areas for national banks and federal savings associations. Top supervisory priorities will focus on credit, operational, and compliance risk. As previously discussed in the spring 2017 semiannual report, compliance risk continues to be an ongoing concern, particularly as banks continue to adopt new technologies to help them comply with anti-money laundering rules and the Bank Secrecy Act (BSA), in addition to addressing increased cybersecurity challenges and new consumer protection laws. (See previous InfoBytes coverage here.) The OCC commented that these types of risks can be mitigated by banks with “appropriate due diligence and ongoing oversight.”

    Specific areas of particular concern include the following:

    • easing of commercial credit underwriting practices;
    • increasing complexity and severity of cybersecurity threats, including phishing scams that are the primary method of breaching bank data systems;
    • using limited third-party service providers for critical operations, which can create “concentrated points of failure resulting in systemic risk to the financial services sector”;
    • compliance challenges under the BSA; and
    • challenges in risk management involving consumer compliance regulations.

    The report also raises concerns about new requirements under the Military Lending Act along with pending changes to data collection under the Home Mortgage Disclosure Act, which could pose compliance challenges. It further discusses a new standard taking effect in 2020 for measuring expected credit losses, which “may pose operational and strategic risk to some banks when measuring and assessing the collectability of financial assets.”

    The data relied on in the report was effective as of June 30, 2017.

    Federal Issues Agency Rule-Making & Guidance OCC Risk Management Bank Regulatory Third-Party Bank Secrecy Act HMDA Military Lending Act Vendor Management Anti-Money Laundering Privacy/Cyber Risk & Data Security

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  • Senate Banking Committee: Sharpen the Focus of AML/BSA Enforcement and Oversight

    Financial Crimes

    On January 9, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing entitled, “Combating Money Laundering and Other Forms of Illicit Finance: Opportunities to Reform and Strengthen BSA Enforcement” to discuss anti-money laundering and Bank Secrecy Act (AML/BSA) enforcement and compliance. Committee Chairman Mike Crapo (R-Idaho) opened the hearing by stating that Congress and financial regulators must examine and address “decades-old” Bank Secrecy Act and anti-money laundering requirements in order “to sharpen the focus, sustainability and enforcement of a modernized, more efficient U.S. counter-threat-finance architecture.” During the hearing, the Committee stressed the need to move towards a more targeted, strengthened AML framework so that banks, law enforcement, and regulators can focus on specific threats such as the financing of terrorism and sanctions evasions.

    The three witnesses offered numerous insights related to reforming AML/BSA enforcement and regulatory structures, including: (i) establishing an approach that would utilize and track intelligence and analysis rather than focusing primarily on quantifiable metrics; (ii) increasing inter-agency coordination and improving information sharing between financial institutions and regulators, and among financial institutions themselves; (iii) recognizing the importance of law enforcement participation, specifically related to the sharing of suspicious activity reports; (iv) encouraging the participation of entities outside of the banking sector, such as persons involved in real estate or those acting as proxies for financial system access; (v) supporting beneficial ownership legislation for companies formed in the United States; and (v) understanding the ways in which financial institutions are addressing the anonymity of cryptocurrencies and blockchain technology. The witnesses were:

    • Mr. Dennis Lormel, President and CEO, DML Associates and former Chief, FBI Financial Crimes Program (testimony);
    • Mr. Greg Baer, President, The Clearing House Association (testimony); and
    • Ms. Heather Lowe, Legal Counsel and Director of Government Affairs, Global Financial Integrity (testimony).

    Financial Crimes Senate Banking Committee Anti-Money Laundering Bank Secrecy Act SARs Cryptocurrency Virtual Currency Blockchain

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  • OCC fines national bank for failing to fix BSA deficiencies

    Financial Crimes

    On January 4, the OCC issued a consent order assessing a $70 million civil money penalty against a national bank for failing to comply with the agency’s 2012 cease and desist consent order related to Bank Secrecy Act (BSA) and anti-money laundering (AML) deficiencies. The 2012 order cited the bank for, among other things, failing to file suspicious activity reports in a timely manner and weaknesses in controls related to its correspondent banking from deposit capture/international cash letter instrument activity. According to the OCC, the $70 million civil money penalty results from the bank’s failure “to complete corrective actions to address BSA/AML compliance issues as required by the [2012] order.”

    Financial Crimes OCC Bank Secrecy Act Anti-Money Laundering SARs

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  • NYDFS fines global money service $60 million for AML deficiencies

    Financial Crimes

    On January 4, New York Department of Financial Services (NYDFS) ordered one of the largest global money transfer services to pay $60 million for willfully failing to implement an effective anti-money laundering (AML) program. According to the consent order, between 2004 and 2012, three of the company’s New York locations allowed the company’s services to be used to pay debts to human traffickers based in China. Additionally, the order emphasizes that the company was aware of weaknesses in its compliance program for years and failed to implement controls that could have detected and prevented the payments in question. The NYDFS investigation resulted from a January 2017 settlement with the Department of Justice, which found that during the same time period (2004-2012), the company processed hundreds of thousands of transactions for company agents and others involved in an international consumer fraud scheme, as previously covered by InfoBytes. In addition to the fine, the order requires that the company put in place stricter AML compliance measures, including the creation of an Independent Compliance Committee of the Board of Directors.

    Financial Crimes NYDFS Bank Secrecy Act Anti-Money Laundering Bank Compliance International

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  • NYDFS Orders Korean Bank to Pay $11 Million Civil Money Penalty for BSA/AML Compliance Deficiencies

    Financial Crimes

    On December 21, the New York Department of Financial Services (NYDFS) entered into a consent order with a Korean bank and its New York branch to resolve issues regarding alleged deficiencies in the branch’s Bank Secrecy Act and other anti-money laundering (BSA/AML) compliance and risk management. The alleged deficiencies were discovered during three examinations between 2014-2016 by NYDFS and the Federal Reserve Bank of New York. According to the consent order, among other things, the branch failed to maintain adequate transaction monitoring and suspicious activity reporting (SAR), lacked compliance staff with proper BSA/AML background experience, and lacked adequate BSA/AML and OFAC risk assessments.

    The Korean bank and its branch are required to pay an $11 million civil money penalty, and in addition must submit the following documentation (i) a BSA/AML compliance program; (ii) a customer due-diligence program; (iii) a SAR program; (iv) a revised internal audit program; and (v) a plan to enhance oversight of the branch’s BSA/AML compliance requirements. The Korean bank and branch are also required to submit quarterly reports for two years with updates on the branch’s compliance progress.

    Financial Crimes NYDFS Bank Secrecy Act Anti-Money Laundering SARs Settlement

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  • FinCEN Updates Bank Secrecy Act FAQs

    Financial Crimes

    Recently, the Financial Crimes Enforcement Network (FinCEN) updated its “Answers to Frequently Asked Bank Secrecy Act (BSA) Questions.” The December update provided the following, among other things: (i) “depository institutions are not required to file a Designation of Exempt Person form . . . with respect to the transfer of currency to or from any of the 12 Federal Reserve Banks” (in accordance with amended 31 CFR 1020.315); (ii) guidelines for filing the Designation of Exempt Person form; and (iii) guidance concerning the types of identifying information financial institutions should obtain when a federal, state or local government official engages in a transaction over a certain amount in an official capacity. FinCEN stated that “the answers are not meant to be comprehensive, apply to all factual situations, or to replace or supersede the BSA regulations.”

    Financial Crimes FinCEN Bank Secrecy Act Department of Treasury Federal Reserve

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  • Federal Reserve Issues Consent Order to Bank for BSA/AML Compliance Deficiencies

    Financial Crimes

    On December 14, the Federal Reserve Board (Fed) entered into a consent order with an international bank regarding alleged deficiencies in the bank’s New York branch (Branch) Bank Secrecy Act and other anti-money laundering (BSA/AML) compliance and risk management. The consent order also relates to a 2009 written agreement among the bank, the Branch and the predecessor of the New York State Department of Financial Services, which cited BSA/AML compliance and risk management deficiencies identified by examiners in regards to the Branch’s correspondent banking services and U.S. dollar funds transfer clearing. In 2016, a Fed examination found that the bank and the Branch had not achieved full compliance with the requirements in the 2009 agreement.

    The 2017 order, among other things, requires the bank and Branch to submit a written governance plan to achieve compliance with BSA/AML requirements, and to engage an independent third party acceptable to the Fed to conduct and report on a comprehensive review of Branch’s BSA/AML compliance. Within 60 days of the report findings, the bank and Branch must submit an enhanced compliance program plan, an enhanced customer due diligence program plan, and a program to ensure accurate suspicious activity monitoring and reporting. 

    Financial Crimes Federal Reserve Bank Secrecy Act Anti-Money Laundering

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  • OCC Recent Enforcement Actions Target BSA/AML Compliance Programs and National Flood Insurance Act Violations

    Federal Issues

    On December 14, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such parties. The new enforcement actions include cease and desist orders, civil money penalty orders, removal/prohibition orders, and restitution orders. The list also includes recently terminated enforcement actions.

    Cease and Desist Order. On November 9, the OCC issued a consent order (2017 Order) two days after converting a Japanese bank’s two New York branches under the supervision of the New York Department of Financial Services (NYDFS) to federally licensed branches under the supervision of the OCC. As part of the OCC’s approval process, the bank’s federal branches and New York branches agreed to the issuance of the 2017 Order, which requires adherence to “remedial provisions . . . substantively the same as those” in consent orders entered into in 2013 and 2014 with NYDFS. The previously issued consent orders addressed deficiencies related to the bank’s Bank Secrecy Act/Anti-Money Laundering (BSA/AML) sanctions compliance programs, specifically concerning the removal of key warnings to regulators on transactions with sanctioned countries.

    The 2017 Order, among other things, requires the bank to: (i) submit an action plan on enhancing internal controls and updating policies and procedures to correct BSA/AML deficiencies, address provisions applicable under the Office of Foreign Assets Control’s requirements, and implement requirements outlined in the 2013 and 2014 consent orders; (ii) ensure adherence to the action plan and 2017 Order under the direction of the bank’s general manager; (iii) submit a management oversight plan designed to improve and enhance the bank’s sanctions compliance programs; and (iv) prevent the retention or future engagement of any individual identified and “barred by the 2014 Consent Order from engaging, directly or indirectly, in any duties, responsibilities, or activities at or on behalf of the [b]ank or the [b]ank’s affiliates that involve their banking business in the [U.S.].” The 2017 Order does not require the bank to pay a civil monetary penalty.

    Civil Monetary Penalty. On October 10, the OCC assessed a $452,000 civil monetary penalty against a national bank lender for alleged violations of the National Flood Insurance Act and/or the Flood Disaster Protection Act. The bank agreed to pay the penalty without admitting or denying any wrongdoing. 

    Federal Issues OCC Enforcement Compliance Bank Secrecy Act Anti-Money Laundering OFAC NYDFS Financial Crimes Flood Insurance Sanctions

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