Money Laundering in the News
Bank capped number of alerts rather than invest resources to investigate suspicious activity
WASHINGTON—The Financial Crimes Enforcement Network (FinCEN), in coordination with the Office of the Comptroller of the Currency, and the U.S. Department of Justice, today announced the assessment of a $185 million civil money penalty against U.S. Bank for willful violations of several provisions of the Bank Secrecy Act (BSA). U.S. Bank’s obligation will be satisfied by payment of $70 million to the U.S. Department of the Treasury with the remaining amount satisfied by payments in accordance with the DOJ’s actions. Since 2011, U.S. Bank willfully violated the BSA’s program and reporting requirements by failing to establish and implement an adequate anti-money laundering program, failing to report suspicious activity, and failing to adequately report currency transactions.
Banks are required to conduct risk-based monitoring to sift through transactions and to alert staff to potentially suspicious activity. Instead of addressing apparent risks, U.S. Bank capped the number of alerts its automated transaction monitoring system would generate to identify only a predetermined number of transactions for further investigation, without regard for the legitimate alerts that would be lost due to the cap.
“U.S. Bank is being penalized for willfully violating the Bank Secrecy Act, and failing to address and report suspicious activity. U.S. Bank chose to manipulate their software to cap the number of suspicious activity alerts rather than to increase capacity to comply with anti-money laundering laws,” said FinCEN Director Kenneth A. Blanco. “U.S. Bank’s own anti-money laundering staff warned against the risk of this alerts-capping strategy, but these warnings were ignored by management. U.S. Bank failed in its duty to protect our financial system against money laundering and provide law enforcement with valuable information.”
U.S. Bank systemically and continually devoted an inadequate amount of resources to its AML program. Internal testing by U.S. Bank showed that alert capping caused it to fail to investigate and report thousands of suspicious transactions. Instead of removing the alert caps, the bank terminated the testing. U.S. Bank also allowed, and failed to monitor, non-customers conducting millions of dollars of risky currency transfers at its branches through a large money transmitter. In addition, U.S. Bank filed over 5,000 Currency Transaction Reports (CTRs) with incomplete or inaccurate information, impeding law enforcement’s ability to identify and track potentially unlawful behavior.
U.S. Bank also had an inadequate process to handle high-risk customers. As a result, customers whom the bank identified or should have identified as high-risk were free to conduct transactions through the bank, with little or no bank oversight. By not having an adequate process in place to address high-risk customers, U.S. Bank failed to appropriately analyze or report the illicit financial risks of its customer base. These failures precluded the bank from adequately addressing the risks that such customers posed, including filing timely suspicious activity reports that law enforcement investigators rely upon to recognize and to pursue financial criminals.
FinCEN Penalizes Peer-to-Peer Virtual Currency Exchanger for Violations of Anti-Money Laundering Laws April 18, 2019
WASHINGTON—The Financial Crimes Enforcement Network (FinCEN) has assessed a civil money penalty against Eric Powers for willfully violating the Bank Secrecy Act’s (BSA) registration, program, and reporting requirements. Mr. Powers failed to register as a money services business (MSB), had no written policies or procedures for ensuring compliance with the BSA, and failed to report suspicious transactions and currency transactions.
Mr. Powers operated as a peer-to-peer exchanger of convertible virtual currency. As “money transmitters,” peer-to-peer exchangers are required to comply with the BSA obligations that apply to MSBs, including registering with FinCEN; developing, implementing, and maintaining an effective AML program; filing Suspicious Activity Reports (SARs) and Currency Transaction Reports (CTRs); and maintaining certain records.
“Obligations under the BSA apply to money transmitters regardless of their size,” said FinCEN Director Kenneth A. Blanco. “It should not come as a surprise that we will take enforcement action based on what we have publicly stated since our March 2013 Guidance—that exchangers of convertible virtual currency, such as Mr. Powers, are money transmitters and must register as MSBs. In fact, there were indications that Mr. Powers specifically was aware of these obligations, but willfully failed to honor them. Such failures put our financial system and national security at risk and jeopardize the safety and well-being of our people, as well as undercut responsible innovation in the financial services space.”
Mr. Powers advertised his intent to purchase and sell bitcoin on the internet. He completed transactions by either physically delivering or receiving currency in person, sending or receiving currency through the mail, or coordinating transactions by wire through a depository institution. Mr. Powers processed numerous suspicious transactions without ever filing a SAR, including doing business related to the illicit darknet marketplace “Silk Road,” as well as servicing customers through The Onion Router (TOR) without taking steps to determine customer identity and whether funds were derived from illegal activity.
Mr. Powers conducted over 200 transactions involving the physical transfer of more than $10,000 in currency, yet failed to file a single CTR. For instance, Mr. Powers conducted approximately 160 purchases of bitcoin for approximately $5 million through in-person cash transactions, conducted in public places such as coffee shops, with an individual identified through a bitcoin forum. Of these cash transactions, 150 were in-person and were conducted in separate instances for over $10,000 during a single business day. Each of these 150 transactions necessitated the filing of a CTR.
FinCEN notes that this is its first enforcement action against a peer-to-peer virtual currency exchanger and the first instance in which it has penalized an exchanger of virtual currency for failure to file CTRs. FinCEN also notes that since his infractions, Mr. Powers has cooperated with FinCEN efforts. In addition to paying a $35,000 fine, Mr. Powers has agreed to an industry bar that would prohibit him from providing money transmission services or engaging in any other activity that would make him a “money services business” for purposes of FinCEN regulations.
FinCEN Penalizes Texas Bank for Violations of Anti-Money Laundering Laws Focusing on Section 312 Due Diligence Violations November 01, 2017
WASHINGTON, D.C. – The Financial Crimes Enforcement Network (FinCEN) today announced the assessment of a $2 million civil money penalty against Lone Star National Bank (Lone Star) of Pharr, Texas for willfully violating the Bank Secrecy Act (BSA). The action underscores the dangers that institutions face when taking on international correspondence activities without properly equipping themselves to manage such business. As noted in FinCEN’s assessment, among other lapses, Lone Star failed to comply with section 312 of the USA PATRIOT Act, which imposes specific due diligence obligations with respect to correspondent banking.
Many of the lapses in Lone Star’s BSA compliance were previously covered in an earlier action by the Office of the Comptroller of the Currency (OCC), but FinCEN’s action focusing on the bank’s 312 violations specifically highlights the need for a financial institution to avoid taking on international business for which it is not prepared. Lone Star’s Mexican financial institution customer was moving millions of dollars through Lone Star in a manner inconsistent with the parameters of a relationship which, at the outset, required greater scrutiny. Lone Star failed to identify and consider public information about the foreign bank owner’s alleged involvement in securities fraud. It also failed to verify the accuracy of assertions by the foreign bank with respect to source of funds, purpose of the account, and expected activity.
“Lone Star plainly failed to ask obvious due diligence questions in connection with its foreign bank account relationship, and did not follow up on inconsistencies in answers to the questions that it did ask,” said FinCEN Acting Director Jamal El-Hindi. “Notwithstanding the fact that the OCC already fined the bank, FinCEN’s assessment takes into account the penalties specifically applicable under FinCEN’s Section 312 authority. Smaller banks, just like the bigger ones, need to fully understand and follow the 312 due diligence requirements if they open up accounts for foreign banks. The risks can indeed be managed, but not if they are ignored.”
With respect to many of the deficiencies noted in FinCEN’s assessment, the OCC entered into a Consent Order and a Memorandum of Understanding with Lone Star in 2012. Lone Star continued to have severe programmatic anti-money laundering (AML) deficiencies through 2012, 2013, and 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. Lone Star’s previous penalty payment to the OCC will be credited to FinCEN’s assessment and the bank will pay an additional $1 million to satisfy its obligation to FinCEN.
FinCEN recognizes that Lone Star has expended considerable resources to respond to the findings regarding its BSA program and to promote compliance with the OCC’s Consent Order. Lone Star is no longer engaging in the correspondent banking activities for which it was ill prepared. The bank has contracted outside consultants to conduct independent testing, conduct customer due diligence and suspicious activity lookbacks, and has expanded its BSA compliance organization.
DFS Fines Western Union $60 Million For Violations Of New York’s Anti-Money Laundering Laws And For Ignoring Suspicious Transactions To Locations In China January 4, 2018
Financial Services Superintendent Maria T. Vullo today announced that Western Union has agreed to pay a $60 million fine as part of a consent order with the New York State Department of Financial Services (DFS) for violations of New York Bank Secrecy Act (BSA) and anti-money laundering laws (AML). An investigation by DFS found that, for more than a decade, Western Union failed to implement and maintain an anti-money laundering compliance program to deter, detect and report on criminals’ use of its electronic network to facilitate fraud, money laundering and the illegal structuring of transactions below amounts that would trigger regulatory reporting requirements. In addition, the DFS investigation discovered that senior Western Union executives and managers willfully ignored, and failed to report to DFS, suspicious transactions to Western Union locations in China by several high-volume agents in New York, other states and around the world, including money transfers that may have aided human trafficking. DFS licenses and regulates money transmitters in New York State and is the sole regulator for Western Union in New York State.
“Western Union executives put profits ahead of the company’s responsibilities to detect and prevent money laundering and fraud, by choosing to maintain relationships with and failing to discipline obviously suspect, but highly profitable, agents,” said Superintendent Vullo. “DFS will not tolerate unlawful activity that undermines anti-money laundering laws and endangers the integrity of our financial system.”
The DFS investigation found that between at least 2004 and 2012, Western Union willfully failed to implement and maintain an effective anti-money laundering program to deter, detect, and report on suspected criminal fraud, money laundering, and illegal “structuring” schemes. Structuring occurs when a party executes financial transactions in a specific pattern, like breaking up a larger sum into smaller transactions. The purpose of structuring typically is to avoid triggering the obligation of a money transmitter like Western Union to file reports with the federal government required by the BSA, or to avoid the money transmitter’s own requirements for providing certain types of identification and other evidence of the legitimacy of the financial transaction.
Western Union has a prior history of compliance issues. In 2002, DFS’s predecessor agency, the New York State Banking Department, conducted an examination of the company and determined that it failed to establish effective procedures to monitor its agents, detect suspicious transactions, and file suspicious activity reports. In addition, in a January 2017 agreement with the U.S. Department of Justice, Western Union admitted to federal criminal offenses of willfully failing to implement an effective anti-money laundering program under the Bank Secrecy Act, and aiding and abetting wire fraud.
In today’s announcement, DFS said that several Western Union executives and managers knew about or willfully ignored improper conduct involving “NY China Corridor agents.” Moreover, even after the U.S. Department of Justice launched an investigation of Western Union in 2012, and the company became aware of the full scope of the misconduct involving the NY China Corridor Agents, the company waited two years to disclose this information to the DFS.
The NY China Corridor agents include a small business located in Lower Manhattan, one in Sunset Park, Brooklyn, and another in Flushing, Queens. Despite their small size, these agents were some of Western Union’s largest agent locations in the world by transaction volume – and thus some of the most profitable for the company.
The Lower Manhattan agent, a small travel agency that offered Western Union money transmission services, processed more than 447,000 transactions totaling more than $1.14 billion between 2004 and 2011. The Sunset Park location appears to be owned by the spouse of the owner of the Lower Manhattan location. The two agents were among the biggest Western Union agents in the entire country.
The Sunset Park location, a small business that sold wireless cellphone services to consumers, and also offered Western Union money transmission services, processed more than 302,000 transactions, totaling more than $600 million, between 2005 and 2011. Almost all of the more than $1.7 billion transfers processed in this time period processed by the Lower Manhattan and Sunset Park agents were transmitted to China. According to federal law enforcement authorities, at least 25 to 30 percent of these transactions showed indications of illegal structuring.
Between 2004 and 2012, the Flushing location processed more than 735,000 transactions, totaling more than $1.2 billion, most of which were sent to China. The sheer number and size of transactions processed by these agents, which were small independent stores each with a small number of employees, stood out as strong indicators of significant money laundering risk.
Western Union had extensive evidence indicating repeated suspicious, improper, or illegal conduct by these agents. The company conducted almost two dozen compliance reviews of the Lower Manhattan and Sunset Park agents during the relevant time period. On each occasion, Western Union compliance staff found clear deficiencies with AML rules and internal company policies. However, senior managers intervened in the disciplinary to push for special treatment for problematic agents that were the highest fee generators, including failing to suspend them. In New York, these tended to be the NY China Corridor agents.
In 2008, Western Union paid the owner of the Lower Manhattan location a $250,000 bonus to renew his contract with the company, despite the agent’s numerous compliance violations. The owner of the Lower Manhattan location later admitted to law enforcement agents that he knew that at least some customers used Western Union’s money transfer services to pay debts to human traffickers based in China, and structured transactions to avoid identification and reporting requirements and thus evade scrutiny.
Western Union pays agents a commission for each money transfer the agent processes. It may also pay an agent bonuses and other compensation based on transaction volume. The company can terminate or suspend any agent or agent location for a variety of reasons, but especially for compliance reasons.
Western Union, which has more than 2,800 agent locations in New York State, has been licensed by DFS since 1990. In 2016, New York agents processed more than 18 million consumer-to-consumer financial transactions, totaling more than $4 billion. Transactions involving New York agents in 2016 yielded $224 million in revenue for Western Union, resulting in gross profits to the company of approximately $50 million.
Western Union must submit a written plan to DFS within 90 days that is designed to ensure the enduring adequacy of its anti-money laundering and anti-fraud programs. Western Union must also submit a written progress report to DFS detailing the form and manner of all actions taken to secure compliance with the provisions of this Order, and the results of any such actions at six, twelve, eighteen, and twenty-four months from the date of the Consent Order.
MoneyGram International Inc. Agrees to Extend Deferred Prosecution Agreement, Forfeits $125 Million in Settlement with Justice Department and Federal Trade Commission Thursday, November 8, 2018
Company also Agrees to Implement Additional Anti-Fraud and Anti-Money Laundering Program Compliance Enhancements in Agreements with Federal Authorities
MoneyGram International Inc. (MoneyGram), a global money services business headquartered in Dallas, Texas, has agreed to extend its deferred prosecution agreement and forfeit $125 million due to significant weaknesses in MoneyGram’s anti-fraud and anti-money laundering (AML) program resulting in MoneyGram’s breach of its 2012 deferred prosecution agreement (DPA). In addition to the monetary payment and extension of the deferred prosecution agreement, the company must enhance its anti-fraud and AML compliance programs.
Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney David J. Freed of the Middle District of Pennsylvania, Federal Trade Commission (FTC) Chairman Joseph Simons and Postal Inspector-in-Charge Daniel B. Brubaker of the U.S. Postal Inspection Service (USPIS) Philadelphia Division made the announcement.
A two-count felony criminal information was filed on Nov. 9, 2012, in the Middle District of Pennsylvania charging MoneyGram with willfully failing to maintain an effective AML program and aiding and abetting wire fraud. The government agreed to defer prosecution on the information for five years provided MoneyGram complied with the DPA. Today’s amendment to the agreement will extend the term of the DPA for 30 months.
According to court documents filed in 2012, MoneyGram was involved in consumer fraud schemes perpetrated by corrupt MoneyGram agents and others. In the fraud scams, which generally targeted the elderly and other vulnerable groups, perpetrators contacted victims in the United States and falsely posed as victim’s relatives in urgent need of money, falsely promised large cash prizes, or promised items for sale over the internet at deeply discounted prices. The perpetrators required the victims to send funds through MoneyGram’s money transfer system.
According to the joint motion filed today to extend and amend the DPA, MoneyGram breached its 2012 DPA. During the course of the DPA, MoneyGram experienced significant weaknesses in its AML and anti-fraud program, inadequately disclosed these weaknesses to the government, and failed to complete all of the DPA’s required enhanced compliance undertakings. As a result of its failures, MoneyGram processed at least $125 million in additional consumer fraud transactions between April 2015 and October 2016.
Today, as a result of MoneyGram’s breach of the DPA, the government filed a motion to extend all the terms of MoneyGram’s DPA and amend and enhance MoneyGram’s compliance requirements pursuant to the DPA. In addition, MoneyGram agreed to forfeit $125 million, which the department intends to return to victims of fraud through the Justice Department’s Victim Compensation Program. Under the terms of the extension, the government has agreed to continue to defer prosecution for a period of 30 months, after which time the government would seek to dismiss charges if MoneyGram has complied with the agreement.
As part of the amendment to and extension of the DPA, MoneyGram has agreed to additional enhanced compliance obligations, including creating policies or procedures:
to block certain reported fraud receivers and senders from using MoneyGram’s money transfer system within two days of receiving a complaint identifying those individuals;
to require individuals worldwide to provide government-issued identification to send or receive money transfers;
to monitor all money transfers originating in the United States in its anti-fraud program; and
to terminate, discipline, or restrict agents processing a high volume of transactions related to reported fraud receivers and senders.
In a related case, MoneyGram agreed to settle contempt allegations by the FTC filed today in the U.S. District Court for the Northern District of Illinois, alleging that MoneyGram violated its 2009 order with the FTC. The FTC alleges that MoneyGram failed to implement the comprehensive fraud prevention program mandated by the 2009 order, which requires the company to promptly investigate, restrict, suspend, and terminate high-fraud agents. According to the FTC, MoneyGram was aware for years of the high levels of fraud and suspicious activities involving certain agents, including large chain agents, but failed to promptly conduct required reviews or suspend or terminate agents, as required by the 2009 order.
In resolving the FTC allegations, MoneyGram agreed to a monetary judgment of $125 million and to an expanded and modified order that will supersede the Commission’s 2009 order and apply to money transfers worldwide. The modified order requires, among other things, that the company block the money transfers of known perpetrators of fraud schemes and provide refunds to fraud victims in circumstances where its agents fail to comply with applicable policies and procedures. In addition, the modified order includes enhanced due diligence, investigative, and disciplinary requirements.
The USPIS and the U.S. Attorney’s Office for the Middle District of Pennsylvania have been investigating and prosecuting consumer fraud schemes using MoneyGram’s money transfer system since 2007. To date, the U.S. Attorney’s Office of the Middle District of Pennsylvania has charged 37 MoneyGram agent owners for conspiracy, money laundering and fraud-related violations. Twenty-eight of those charged have been convicted.
USPIS’s Philadelphia Division’s Harrisburg, Pennsylvania Office investigated the case. Senior Trial Attorney Margaret A. Moeser of the Criminal Division’s Money Laundering and Asset Recovery Section’s Bank Integrity Unit and Assistant U.S. Attorney Kim Douglas Daniel of the Middle District of Pennsylvania are prosecuting the case. The department appreciates the significant cooperation and assistance provided by the FTC in this matter.
Bank Sentenced for Obstructing Regulators, Forfeits $368 Million for Concealing Anti-Money Laundering Failures Friday, May 18, 2018
SAN DIEGO – Rabobank, National Association, a California subsidiary of the Netherlands-based Coöperatieve Rabobank U.A., was sentenced today before U.S. District Judge Jeffrey T. Miller for conspiring to impair, impede, and obstruct its primary regulator, the Department of the Treasury’s Office of the Comptroller of the Currency (OCC), by concealing deficiencies in its anti-money laundering program.
Judge Miller sentenced Rabobank to pay the statutory maximum fine of $500,000 after taking account of Rabobank’s forfeiture of $368,701,259 as well as a two-year term of probation. Today’s half million dollar criminal fine coupled with Rabobank’s forfeiture of $368,701,259 stands as the largest monetary penalty paid by a criminal defendant in the history of the Southern District of California.
In imposing sentence, Judge Miller noted that Rabobank’s conduct essentially amounted to “stiff-arming the OCC, and completely failing in its responsibility to its customers and the nation.”
“The U.S. Attorney’s Office is intent on securing the border and preventing the laundering of narco-dollars through financial institutions like Rabobank,” said U.S. Attorney Adam L. Braverman. “In doing so we will safeguard our communities and protect our citizens from drug traffickers and corporate criminals alike.”
“Rabobank’s branches on the Mexican border processed hundreds of millions of dollars in suspicious transactions likely tied to international narcotics trafficking, organized crime, and money laundering,” said Acting Assistant Attorney General John P. Cronan. “Instead of filing reports that would have alerted law enforcement to the suspicious activity, as required by law, the bank looked the other way and then compounded its misconduct by conspiring to cover-up its failures and deceiving its regulator. Today’s sentence and the related forfeiture demonstrate that the Department of Justice will use all the tools at our disposal to combat drug trafficking and transnational crime—including prosecuting financial institutions that turn a blind eye to illicit proceeds moving through their customers’ accounts.”
“It is the responsibility of Homeland Security Investigations (“HSI”) to monitor and investigate activity which exploits the global infrastructure, to include financial systems. This complex investigation revealed, and Rabobank admits, that Rabobank was aware of the extreme risk that it was processing hundreds of millions of dollars related to transnational crime and international money laundering – activity which plagues the Southwest Border,” said Dave Shaw, Special Agent in Charge for HSI in San Diego. “This plea and significant forfeiture sends a strong message to financial institutions that this activity will not be tolerated.”
“Rabobank’s sentencing today is a victory for all Americans and sends a strong message about the need for transparency in banking and ultimately contributes to the fight against money laundering,” stated IRS Criminal Investigation’s Special Agent in Charge, Los Angeles Field Office, R. Damon Rowe. “IRS-Criminal Investigation works