On February 27, 2017, the Financial Crimes Enforcement Network (FinCEN) announced the assessment of a $7 million civil money penalty (CMP) against Merchants Bank of California (“Merchants”) in Carson, CA, for willful AML violations related to violations of several provisions of the Bank Secrecy Act (BSA). The Office of the Comptroller of the Currency (OCC), the primary federal regulator of Merchants, had previously identified deficiencies in the Bank’s practices that resulted in violations of previous consent orders entered into by Merchants, as well as other violations. The OCC simultaneously assessed a $1 million CMP against Merchants for these violations. Merchants failed to (a) establish and implement an adequate anti-money laundering (AML) program, (b) conduct required due diligence on its foreign correspondent accounts, and (c) detect and report suspicious activity. 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 specialized in providing banking services for check-cashers and money transmitters. However, based on the findings of FinCEN, it provided those services without adequately assessing the money laundering risks and without designing an effective AML program. Merchants also provided its high-risk customers with remote deposit capture services without adequate procedures for monitoring their use. 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’ had bank customers located in several jurisdictions, who were 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.
FinCEN’s settlement with a financial institution does not preclude consideration of separate enforcement actions that may be warranted with respect to any financial institution or any partner, director, officer, or employee of a financial institution for AML violations.