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Harry Cassin
Publisher and Editor

Andy Spalding
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Richard L. Cassin
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Elizabeth K. Spahn
Editor Emeritus

Cody Worthington
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Julie DiMauro
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Thomas Fox
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Marc Alain Bohn
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Bill Waite
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Shruti J. Shah
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Russell A. Stamets
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Richard Bistrong
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Eric Carlson
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FinCEN fines California bank $7 million for impeding compliance staff

The Financial Crimes Enforcement Network (FinCEN) Monday fined Merchants Bank of California $7 million for impeding compliance staff and threatening to fire staffers who wouldn’t process suspicious transactions.

The Carson-based bank allowed billions of dollars to flow through the U.S. financial system “without effective monitoring,” FinCEN said.

Merchants Bank didn’t give compliance staff “the necessary level of authority, independence, and responsibility” to run the anti-money laundering program. For example, customers from high-risk jurisdictions weren’t flagged or subjected to required diligence.

Many of the bank’s unreported suspicious transactions were conducted on behalf of money services businesses owned or managed by Merchant Bank insiders. The insiders “encouraged staff to process these transactions without question or face potential dismissal or retaliation,” FinCEN said..

Bank insiders also directly interfered with the AML staff’s attempts to investigate suspicious activity related to the insider-owned accounts, according to FinCEN.

The Office of the Comptroller of the Currency (OCC) also assessed a $1 million civil penalty against Merchants Bank. The OCC said the bank violated previous consent orders and committed new violations. That penalty is being credited against FinCEN’s civil fine.

Merchants Bank specialized in providing banking services for check-cashers and money transmitters. “It provided those services without adequately assessing the money laundering risks and without designing an effective AML program,” FinCEN said.

Merchants gave high-risk customers access to “remote deposit capture services” without adequate procedures for monitoring their use. Remote deposit services typically allow customers to deposit money by scanning checks and transmitting the scanned images to the bank.

FinCEN said,

Merchants’ leadership impeded [AML] analysts and other employees from investigating activity on transactions associated with accounts that were affiliated with Bank executives, and the activity in these accounts went unreported for many years.

“In a three-month period, Merchants processed a combined $192 million in high-risk wire transfers through some of these accounts,” FinCEN said.

FinCEN Acting Director Jamal El-Hindi said Merchants Bank was an “institution run by insiders essentially to provide banking services to money services businesses that the insiders owned.”


Richard L. Cassin is the publisher and editor of the FCPA Blog.

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1 Comment

  1. Yet another sign that regulators are paying attention to the independence, stature and empowerment of Compliance. It's not hard to see why so many compliance professional and CCOs find themselves in a "Mauritza Munich situation- fired for doing their job well. With the arrival of DOJ's new Evaluation of Corporate Compliance Programs guidance (my column coming shortly)- that clearly focuses on so many of the elements of Compliance 2.0 (Compliance subject matter expertise, authority, independence, empowerment, seat at the table and resources), it's clear we can expect these principles to be the object of scrutiny by more and more gatekeepers, including Boards.

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