RECENT BSA ENFORCEMENT ACTIONS

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1 RECENT BSA ENFORCEMENT ACTIONS SHAUN HARMS- CRCM, CBAP EXECUTIVE DIRECTOR BANKERS ASSURANCE, LLC WHAT DO WE TAKE AWAY FROM REGULATORS? 1

2 THE BASICS 1. A system of internal controls to assure ongoing compliance; 2. Independent testing of compliance by bank personnel or by an outside party; 3. A designated individual or individuals responsible for coordinating and monitoring day-to-day compliance; and, 4. Training for appropriate personnel WHERE TO WEAKNESSES GROW? Lack of time Lack of resources No back-up in place Changes in technology Stressing the bottom line 2

3 RECENT ENFORCEMENT ACTIONS Bank of Mingo (6/15/15) Headquartered in Williamson, WV $95.6 Million as of March 31, locations BANK OF MINGO Bank of Mingo was charged with: failing to implement internal controls that would have resulted in the bank obtaining know your customer information, failing to prevent customers from structuring cash transactions to avoid currency transaction reporting requirements, and failing to file suspicious activity reports about certain dubious conduct, such as the structuring of cash transactions. 3

4 BANK OF MINGO Mingo s program deficiencies led to its failure to monitor, detect and report suspicious activity and to timely file currency transaction reports. Consequently, from 2008 through 2012, Mingo allowed more than $9.2 million in structured and otherwise suspicious cash transactions to flow through the institution unreported MINGO FINDINGS 1. Controls Mingo failed to implement an effective system of internal controls reasonably designed to ensure compliance with the BSA and its implementing regulations 2. Testing Mingo s annual independent testing was inadequate. 3. BSA Officer Although Mingo designated a BSA Officer, it did not provide the BSA Officer with sufficient resources and time to adequately oversee Mingo s BSA compliance program. 4. Training Mingo s training program was ineffective. Its employees lacked the knowledge and skills for an effective BSA Program. 4

5 BANK OF MINGO Results FinCEN $4.5 Million CMP FDIC $3.5 Million CMP Includes a $2.2 Million Forfeiture RECENT ENFORCEMENT ACTIONS Gibraltar Private Bank & Trust Company (2/25/16) Coral Gables, FL 8 locations $1.5 Billion as of 12/31/15 5

6 GIBRALTAR PRIVATE BANK & TRUST COMPANY Gibraltar s substantial AML program deficiencies led to its failure to monitor and detect suspicious activity despite red flags. fail to timely file at least 120 suspicious activity reports (SARs) involving nearly $558 million in transactions occurring during 2009 to These deficiencies also unreasonably delayed Gibraltar s SAR reporting regarding accounts related to a $1.2 billion Ponzi scheme. GIBRALTAR PRIVATE BANK & TRUST COMPANY Quote from FinCEN Director We may never know how that scheme might have been disrupted had Gibraltar more rigorously complied with its obligations under the law. This bank s failure to implement and maintain an effective AML program exposed its customers, its banking peers, and our financial system to significant abuse, said FinCEN Director Jennifer Shasky Calvery. 6

7 GIBRALTAR PRIVATE BANK & TRUST COMPANY Results FinCEN $2.5 Million CMP OCC $1.5 Million CMP FIRST BANK OF DELAWARE Received the Death Penalty from the FDIC and FinCEN Loss of charter November 2012 $15 Million Fine and $500,000 restitution $178 million in assets at time of closing Mainly due to transactions with third party payment processors. 7

8 FIRST BANK OF DELAWARE Quote from FinCEN Director "To make money, First Bank of Delaware entered into risky lines of business and chose to disregard its Bank Secrecy Act responsibilities," said FinCEN Director Jennifer Shasky Calvery. "As a result of its failure to implement systems and controls to identify and report suspicious activities, as required by the BSA, financial predators were able to victimize consumers." WHAT TO TAKE OUT OF ACTIONS BSA is still important (and is not going away) Need to make sure we have adequate controls in place BSA Officer should have the time and resources to perform duties and oversee program Independent audit (internal or external) must be sufficient Training is important!! 8

9 PENALTIES FOR NON-COMPLIANCE For Individuals Up to 20 years in prison per transaction Fines up to $10,000 Termination Barred from employment in the banking industry Substantial legal fees Reputation risk For the Bank Fines up to $500,000 per transaction, or two times the transaction amount Loss of charter Loss of FDIC insurance Loss of reputation Cease and Desist Order Substantial legal fees SO WHAT DO WE NEED TO DO? Continually update policies and risk assessments Don t just do it to check off a box Implement a training program for employees and Board Ensure that the BSA Officer (or Department) has time and resources Continue to develop monitoring programs Encourage employees to report activities that just seem unusual Ensure that independent testing is adequate 9