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FinCEN fines bank US$2 million over correspondent accounts

Chris Hamblin, Editor, London, 15 November 2017

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The Financial Crimes Enforcement Network has assessed a civil money penalty of US$2 million against Loan Star Bank for engaging in highly risky foreign correspondent banking services without conducting appropriate checks and without adequately monitoring and reporting suspicious activity.

Lone Star, a Texan bank, wilfully contravened the Bank Secrecy Act 1970’s programme and reporting requirements between 2010 and 2014, according to the regulator. FinCEN says that the bank failed to set up an adequate anti-money-laundering (AML) programme, to conduct required 'due diligence' on a foreign correspondent account and to report suspicious activity. Lone Star’s failures in these areas allowed a single foreign financial institution to move hundreds of millions of US dollars in suspicious bulk cash shipments through the US financial system in less than two years. This activity began just three months before the Mexican government imposed regulations that restricted Mexican bank transactions in US currency and dramatically increased after the regulations became effective. The bank was held not to have deployed enough internal controls or experienced staff in accordance with the BSA.

Section 312 USA PATRIOT Act 2001 amended the BSA to force financial institutions that establish, maintain, administer, or manage correspondent accounts in the United States for foreign financial institutions to conduct rigorous checks on them. They must:

  • determine whether a correspondent account is subject to EDD or "enhanced due diligence";
  • assessing its money laundering risk; and
  • apply risk-based procedures and controls to report its suspicions (or discovery) of money laundering activity, including a periodic review of activity that is good enough to compare anticipated activity with actual activity.

In less than two years, Lone Star allowed approximately $260 million to flow through the foreign bank’s account without good enough controls in place to detect and report suspicious activity. When it was opening the account it failed to identify well-known and public information about the bank's principal owner. It did not verify the accuracy of assertions from that bank regarding the source of funds, their purpose, and expected activity.

Lone Star, which holds both business and personal accounts, also failed consistently to collect and analyse information necessary to assess each customer’s risk and to develop and hold to specific customer risk profiles. It failed to identify the intended purpose of many a 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.

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. The bank had an inadequate process and set of guidelines for reviewing and escalating its AML alerts and investigations. Between January and November 2014 it had 4,888 outstanding alerts, 627 cases and 213 internal referrals.

With respect to many of the deficiencies noted in FinCEN’s assessment, the Office of the Comptroller of the Currency arranged a consent order and a memorandum of understanding with the Texan bank in 2012. Lone Star continued to have severe AML problems right through to 2014. As a result, in 2015, the OCC issued a consent order for a civil money penalty in the amount of $1 million against Lone Star and the payment that it made to the OCC will be credited to FinCEN’s assessment, so the bank will pay an additional $1 million to satisfy its obligation to FinCEN.

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