FinCEN claims California bank violated BSA

On Feb. 27, 2017, the Financial Crimes Enforcement Network (FinCEN) assessed a $7 million civil money penalty against Merchants Bank of California N.A., citing "willful violations" of several provisions of the Bank Secrecy Act (BSA). Simultaneously, the Office of the Comptroller of the Currency added a $1 million CMP to be credited toward bank payment of FinCEN's penalty.

Merchants Bank's troubles began when the OCC identified bank deficiencies in BSA compliance that resulted in violations of consent orders entered into on June 23, 2010, and June 26, 2014, plus a violation for procedures for monitoring BSA compliance. The consent orders required correction of bank deficiencies in all four pillars of the BSA program to ensure internal controls for compliance, compliance testing, and designation and training of compliance personnel.

FinCEN claims Merchants failed to establish an adequate anti-money laundering program, conduct required due diligence on foreign correspondent accounts, and detect and report suspicious activity, allowing billions of dollars to flow through the U.S. financial system unmonitored. While Merchants specializes in bank services for check-cashers and money transmitters, many transactions were conducted on behalf of money services businesses owned or managed by bank insiders and processed without question.

"The banking of money services businesses is important to the global financial system, and we believe that banks can mitigate the risks associated with such businesses, just as they do with other customers," said Jamal El-Hindi, FinCEN Acting Director. "But here we had an institution run by insiders essentially to provide banking services to MSBs that the insiders owned, combined with directions from Bank leadership to staff to ignore BSA requirements with respect to those MSB customers and others."

Merchants Bank allegedly banked customers in high-risk jurisdictions without appropriate identification or due diligence. "In a three-month period, Merchants processed a combined $192 million in high-risk wire transfers through some of these accounts," FinCEN stated.

Editor's Note: We are aware of reports that Verifone Inc. is investigating a breach of its internal computer networks that may have affected merchants, particularly petroleum retailers, using the company's POS solutions. We'll be posting a news story on this later in the week.

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