In ACFCS’ latest Enforcement Roundup, U.S. state, federal and foreign regulators hand down an array of financial crime compliance penalties against banks and brokers, including for lax customer due diligence and risk assessments, poor monitoring of international wires, fleecing customers with unwanted services, attempting to sniff out whistleblowers, and more.

The penalties cumulatively reveal global regulatory focal points and perennial anti-money laundering (AML) vulnerabilities, including the accuracy, depth and data being fed into and analyzed by transaction monitoring systems, the experience and decision-making of analysts and how and why institutions missed filing reports on aberrant activity.

These end-of-year actions also give a glimpse of trends that could continue into 2019, with financial institutions under more pressure to improve the efficiency and effectiveness of systems, cross-train staff members to better understand a wider variety of underlying criminal activities and more aggressively share information with authorities and other banks, domestically and internationally, and vice versa.

Enjoy these enforcement snapshots.

HKMA penalizes JPMorgan Chase $1.6 million for AML failings, lax CDD, wire

Hong Kong’s financial regulator Friday penalized a local branch of the largest bank in the United States nearly HK13 million for a host of financial crime compliance failures, including lax customer screening and monitoring and a lack of client details in wire transfers over a roughly two-year period.

The Hong Kong Monetary Authority (HKMA) fined the JPMorgan Chase branch HK$12.5 million, or $1.6 million, for breaches of anti-money laundering (AML) rules, in particular, for the depth and accuracy of customer due diligence and cross-referencing those findings with wire transfers and related entities, particularly to riskier regions and higher risk customers.

The settlement also requires that JPMorgan submit to an outside monitor to ensure the branch effectively remediates past deficiencies and brings the entire problem up to current standards.

The penalty takes into consideration several aggravating and mitigating factors, according to the HKMA:

·         “The need to send a clear deterrent message to JPMorgan Hong Kong and the industry about the importance of effective controls and procedures to address money laundering and terrorist financing risks.”

·         “JPMorgan Hong Kong had self-identified and reported certain deficiencies, and had taken positive and extensive remediation work in respect of such deficiencies and after it became aware of the contraventions and other deficiencies identified by the HKMA. In particular, it has enhanced its control functions to prevent similar contraventions from recurring.” To read more, click here.

Wells Fargo to pay nearly $600 million to resolve state investigations into unauthorized accounts scandal, sales practices

Wells Fargo last month stated it would pay $575 million to settle a probe by all 50 states and Washington, D.C., into a plethora illegal and unethical practices, including opening accounts without customers, knowledge or permission.

The deal will settle investigations begun after federal regulators revealed in September 2016 that Wells Fargo employees had for several years improperly opened millions of unauthorized bank accounts in customers’ names – without their prior consent in a bid to make profit quotas.

The employees, when later interviewed by authorities, stated they had engaged in the practices  because they were concerned about losing their jobs if they could not meet Wells Fargo’s aggressive sales goals, adding that they did so with the blessing of sales managers and higher executives.

The disclosure led to the departure of Wells Fargo’s chief executive at the time, John Stumpf, and several other top officials, including those in financial crimes compliance. It also led to major reputational harm.

The bank has already admitted the failures and paid in several ways at the federal level, including penalties of nearly $200 million.

But those inquiries uncovered further disreputable actions, including staff tacking on not needed or wanted insurance on customers who took out car loans, hundreds of thousands forcibly enrolled in a bill-paying service, and more.

State investigators listed the actions that led to the penalty, as the bank:

·         opened millions of unauthorized accounts and enrolled customers into online banking services without their knowledge or consent;

·         improperly referred customers for enrollment in third-party renters and life insurance policies;

·         improperly charged auto loan customers for force-placed and unnecessary collateral protection insurance;

·         failed to ensure that customers received refunds of unearned premiums on certain optional auto finance products;

·         incorrectly charged customers for mortgage rate lock extension fees.

Wells Fargo will also “create a consumer restitution review program,” according to penalty documents. “Consumers who have not been made whole through restitution programs already in place can seek review of their inquiry or complaint by a bank escalation team for possible relief.”

To date, the settlement represents the “most significant engagement involving a national bank by state attorneys general acting without a federal law enforcement partner.”

“This agreement is unique and one of the largest multistate settlements with a bank since the National Mortgage Settlement in 2012,” Iowa Attorney General Tom Miller said in a statement. “This significant dollar amount, on top of actions by federal regulators, holds Wells Fargo accountable for its practices.”

To read more, click here.  To read ACFCS coverage of the scandal, and a look at possible solutions from an AML perspective, click here.

FCMC fines JSC ‘BlueOrange Bank’ 1.2 million euros in AML settlement, oversight of risky foreign accounts

Latvia’s financial regulator, the Financial and Capital Market Commission (FCMC) has penalized JSC “BlueOrange Bank” 1.2 million Euros for anti-money laundering (AML) failures, including monitoring and reporting on risky clients – such as non-resident clients hailing from former Soviet Union regions.

Overall, Latvia has come under intense scrutiny by EU and foreign regulators as being a conduit for illicit Russian funds. The country and its banking sector are trying to change that, chiefly by changing laws and strengthening AML enforcement.

Since the changes of the AML/TF regime in the international financial environment along with the reforms to the Latvian banking sector taken by the FCMC over the past four years, various sanctions for the breaches of AML law have been applied to the financial sector entities, including the fines in the amount of approximately 16 million euros,” according to the regulator.

The authority noted that between 2003 and 2014, it handed down 55 penalties worth 1.2 million euros, but in the past four years, levied 22 sanctions worth just less than 16 million euros. To read more, click here.  

The penalty follows other Latvian regulatory fines as the country seeks to change its tarnished reputation when it comes to compliance and fighting financial crime.

In October, the FCMC levied a penalty of 2.2 million euros, or $1.9 million, on the joint stock company LPB Bank, which provides a range of banking products and services primarily for private and corporate clients in Latvia, the EU and internationally. In its last full year financials, covering 2017, the bank had assets of 234.5 million euros, up from 204.7 million euros in 2016.

The regulator is requiring the bank to create and follow an action plan to improve the identified gaps and engage an independent third-party consultant to review the remediation and scour for missed controls or instances of suspicious activity that were never reported.

To read the full report, click here.

The penalties occur as Latvia is under enormous pressure from internal and external AML watchdogs for being linked to several high-profile investigations into illicit financial flows, many originating from Russia.

Domestically, regulators and authorities have in recent months sanctioned several other banks for a range of AML failings while the U.S. named and shamed a Latvian bank, effectively forcing U.S. banks to cut formal ties with the operation – and rethink all operations with the country itself.

More broadly, banks in Denmark, the Netherlands, France and others have also been the subject of sanctions and penalties for AML failures, in some cases allowing billions of dollars in suspicious funds from high-risk regions and absorbing record fine figures in the hundreds of millions of dollars.

Finra fines Morgan Stanley $10 million for AML program failures, lax monitoring system, oversight of penny stock trades  

The Financial Industry Regulatory Authority (Finra), the chief self-regulatory sentinel of the nation’s security sector, Wednesday penalized Morgan Stanley Smith Barney $10 million for a host of financial crime compliance and supervisory failures, from customer vetting and monitoring to missing and reviewing alerts on aberrant transactional activity.

The action stated the firm, among other issues, failed to properly vet customer deposits and sales of penny stocks, wrestled with a weak transaction monitoring system that didn’t adequately scrutinize tens of billions of dollars of wire and foreign currency transfers, including transfers to and from countries known for having high money-laundering risk, and allowed tens of billions of shares of penny stock to move freely – a current Finra focal point.

Finra listed several failures, including:

  • First, Morgan Stanley’s automated AML surveillance system did not receive critical data from several systems, undermining the firm’s surveillance of tens of billions of dollars of wire and foreign currency transfers, including transfers to and from countries known for having high money-laundering risk.
  • Second, Morgan Stanley failed to devote sufficient resources to review alerts generated by its automated AML surveillance system, and consequently Morgan Stanley analysts often closed alerts without sufficiently conducting and/or documenting their investigations of potentially suspicious wire transfers.
  • Third, Morgan Stanley’s AML Department did not reasonably monitor customers’ deposits and trades in penny stock for potentially suspicious activity, despite the fact that its customers deposited approximately 2.7 billion shares of penny stock, which resulted in subsequent sales totaling approximately $164 million during that time period.

To read more, click here.

New York regulator fines Barclays Bank, local branch $15 million for CEO attempting to ferret out whistleblower, clashing with compliance

The New York State Department of Financial Services (NYDFS) has fined Barclays Bank PLC and its New York branch $15 million for violations of New York Banking Law stemming from a DFS investigation into attempts by the bank’s CEO to identify the author, or authors, of two whistleblowing letters in contravention of Barclays’ established whistleblowing policies and procedures.

The DFS investigation found that shortcomings in governance, controls and corporate culture relating to Barclays’ whistleblowing function permitted a sequence of events that potentially could have had a detrimental impact on the efficacy of Barclays’ whistleblowing program.

Several members of senior management failed to follow or apply whistleblowing policies and procedures in a manner that protected the CEO and the bank itself.

Limited gaps in the bank’s whistleblowing policies and procedures became apparent during the investigation, and it appears that the cultural transformation that Barclay’s Group Compliance had been working hard to instill in the more than one hundred thousand Barclays employees worldwide, was not nearly complete. To read more, click here.