Prosecutors and regulators are targeting global banks.  The beginning of 2018 has seen dominated by enforcement actions of financial institutions – the Federal Reserve’s unprecedented enforcement action against Wells Fargo; Rabobank’s payment of $600 million for significant AML violations; and US Bancorp’s (USB’s) recent $613 million settlement AML violations. (Documents Here).

In the latest enforcement action, USB entered into a two-year deferred prosecution agreement (DPA) for failing to have an adequate anti-money laundering program and failing to file a suspicious activity report (SARs).  USB agreed to pay a settlement of $458 million through a forfeiture action, a $75 million penalty to the Office of the Comptroller of the Currency, and a $70 million payment to the Department of Treasury’s Financial Crime Enforcement Network (FinCEN).

AML Violations

USB’s AML program suffered from serious resource deficiencies and understaffing.    The factual statement outlines significant problems in the operation of USB’s compliance program, which should cause other financial institutions to review their own operations to ensure that they avoid the same pitfalls.

USB failed to operate its program tailored to the AML risks, and mistakenly relied on pre-established limits on the number of suspicious transactions subject to AML review.  Internal documents cited in the factual statement included candid admissions by legal and compliance officers that USB’s AML program was ineffective.

USB placed strict limits on the number of transaction subject to AML review, notwithstanding the fact that USB repeatedly learned that a significant percentage of transactions below the thresholds (25 percent to 80 percent) warranted further review for AML risks.  Rather than assigning additional resources and increasing resources to its AML program, USB restricted below threshold testing.

During OCC examinations, USB either misled or ignored OCC observations and warnings on its AML program.   As described by USB officials, USB was using “smoke and mirrors” to “pull the wool over the eyes” of the OCC.

Eventually, when USB implemented a new AML compliance program, USB generated 24,179 alerts and the filing of 2,121 SARs for a six-month period.

USB also failed to monitor high-risk Western Union transactions.  USB approved non-customer WU transactions despite the fact that the transactions could not be monitored.  Even when red flags were raised concerning the transactions, USB failed to investigate the transaction.

Failure to file SARs relating to Robert Tucker

The second count of the criminal information filed against USB charges USB with failure to file a SAR concerning Scott Tuck, a long-time customer, despite Tucker’s fraud and money laundering activities relating to an illegal payday lending scheme using sham bank accounts opened under the name of Native American tribes.

Tucker was eventually convicted for his payday lending scheme and laundering the proceeds through USB bank accounts.  Tucker extended 5 million loans to customers, while generating more than $2 billion in revenues and hundreds of millions of dollars in profits.

USB employees responsible for managing Tucker’s accounts ignored numerous red flags that Tucker was using the Native American accounts to conceal his ownership of the accounts.  For example, Tucker used millions of dollars from these accounts for a vacation home in Aspen, and to operate his professional Ferrari racing team.

Eventually, news organizations uncovered Tucker’s illegal scheme, regulators began to investigate Tucker, and USB closed Tucker’s accounts but failed to file a SAR.  USB did not close Tucker’s non-tribal accounts and opened new ones, allowing over $175 million in illegal proceeds to flow through these accounts.