One of Netherlands largest banks must pay U.S. authorities nearly $370 million and plead guilty to obstruction charges for allowing its financial crime compliance program to flounder for more than a decade – and then lying to federal examiners about known gaps and high-risk practices.
The U.S. Department of Justice (DOJ) and U.S. Treasury’s Office of the Comptroller of the Currency (OCC) negotiated the $368.7 million forfeiture and settlement with Rabobank National Association for failures across the entire anti-money laundering (AML) program from 2009 to 2012, including risk ranking, monitoring and reporting on high-risk customers, including Mexican entities potentially tied to drug cartels.
“When Rabobank learned that substantial numbers of its customers’ transactions were indicative of international narcotics trafficking, organized crime, and money laundering activities, it chose to look the other way and to cover up deficiencies” in AML program, said Acting Assistant Attorney General John Cronan. “Worse still, Rabobank took steps to obstruct an examination by its regulator into those same deficiencies.
The actions reflect on broader current trends in the AML space, including law enforcement wanting banks to plead guilty to a crime as a deterrent to the rest of the industry, the rising risks of informal and non-monetary orders later turning into massive penalties and the risk of a smaller fine turning into a head-turning penalty if examiners feel they were told lies or half-truths.
In all, the bank allowed hundreds of millions of dollars – whether wires, checks or hefty cash deposits just below reporting thresholds, structuring – to flow to and from Mexico, just as laws were changing in that country to restrict deposits of U.S. dollars.
Rabobank took full advantage, according to the Justice Department, with its branch closest to the Mexican border winning awards for growing revenues as a hub for Mexican businesses to deposit cash and engage in an array of international transactions.
The orders also noted that Rabobank had a woefully understaffed compliance team, at some points having only a handful of analysts to clear thousands of alerts per month and close complex cases, resulting in missed customer transaction reports (CTRs) and suspicious activity reports (SARs).
During certain periods in 2011, the bank’s AML investigations unit had “only two people to handle investigations and only three analysts to monitor and manage thousands of monthly alerts,” according to court documents.
“In other words, during those particular periods, three people were tasked with reviewing approximately 2,300 alerts per month and two people were tasked with conducting more than 100 investigations per month, including approximately 75 customers per month for whom SAR determinations had to be made.”
The team was also coached to allow certain risky and potentially illicit customers to evade the $10,000 CTR threshold.
Rabobank’s AML program deficiencies date back to 2006, starting with an OCC memorandum of understanding, a 2008 formal agreement and, prior to the monetary penalty, a 2013 consent order that chastised the bank for weak customer due diligence and risk assessments on the front end, poor monitoring of aberrant transactions and missed suspicious activity reports, the end goal of a functioning program.
As required by the 2013 order, an independent consultant reviewed the bank’s transaction and account activity between January 2010 and December 2013, resulting in the filing of nearly 500 SARs, totaling more than “$233 million in previously unreported suspicious activity.”
Worse, top compliance executives – the DOJ cites three unnamed executives and one compliance manager – consciously chose not to file SARs on certain customers with a checkered past.
The documents note that in one case, the Rabobank executives chose to continue to do business with a risky Mexican customer for nearly a month after being the subject of a request from law enforcement for account details due to potential connections to a narco cartel.
Flawed internal ‘good guy’ list
The charging documents specifically note that the top executives responsible for creating and strengthening the AML compliance program actually created scenarios, systems and practices to sabotage it.
How? By creating bogus “good guy” lists that put the riskiest most profitable Mexican businesses and individuals on an internal list to shield them monitoring and reporting requirements—even when their accounts and transactions created a flurry of AML alerts.
The executive team created what they termed as a “Verified List” meant to halt further scrutiny of certain customers, transactions and attempt to further restrict or block the filing of any CTRs and SARs.
The creation of the “Verified List” and another list called the “Security CMIR Mitigation Policy,” according to investigators, allowed “hundreds of millions of dollars in untraceable cash” to be wired to Mexico and elsewhere “without proper notification” to regulators and law enforcement.
As well, the bank was under pressure to “aggressively increase the number of bank accounts on the Verified List,” according to investigators, noting that the list in 2008 soared from less than 10 “verified” customers to more than a thousand at the end of 2012.
The investigation cites that the three unnamed executives resisting examiner requests from the OCC for documents and reviews and, later, used their authority to strong arm a consultant brought in to remediate, telling examiners the person failed to create a final report, though one was available in draft form.
And in one instance, where one executive started to voice concerns about the AML program, a diatribe that occurred as the OCC threatened a formal action, other bank management shunned the person and later fired them, according to DOJ.
The cover-up included deleting, delaying and changing negative findings in the consultant’s report to further obfuscate the true threadbare status of the AML program.
Rabobank’s guilty plea comes less than two months after a former Rabobank vice president, George Martin, who was also a top AML staffer, entered into a deferred prosecution agreement with the United States for his role in aiding and abetting Rabobank’s failure to maintain an AML program.
Martin admitted his role in the failures in federal court in San Diego on Dec. 14, 2017. As part of its guilty plea, Rabobank agreed to cooperate with the United States’ continuing investigation.
Wrong to lie about AML prongs
Martin can explain first hand how the AML prongs created to detect and prevent money laundering were twisted to instead allow criminal groups to thrive in darkness.
“Rabobank had an obligation to shine light on suspected drug traffickers, money launderers and organized crime,” said U.S. Attorney Adam Braverman. “Instead, this bank deliberately allowed hundreds of millions of dollars of suspicious cash transactions and wire transfers to flow through its branches and took measures to hide this activity from regulators.”
The Justice Department stated the bank lied in several specific areas:
- Alerts, inquiries: That the domestic branches of Rabobank were properly processing alerts and responding to law enforcement subpoenas.
- Staffing, qualifications: That management reacted appropriately to address personnel and resource allocation issues.
- Audits, influence: That Rabobank’s internal audit was at all times independent, without other managers unduly influence the scope or outcome of the review.
- Training, results: That the bank’s AML training was properly designed and successfully met its goals.
The OCC also leveled a $50 million penalty against Rabobank, but stated the forfeiture to the Justice Department would absorb the regulatory fine.
Rabobank’s guilty plea and forfeiture is a “warning to financial institutions that there are significant consequences for banks that engage in obstructive conduct in an effort to hide their anti-money laundering program failures from their regulators,” Cronan said.