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FinCEN: Texas bank failed to ask ‘obvious due diligence questions’

The Treasury Department’s Financial Crimes Enforcement Network fined an independent community bank in Texas $2 million for “willfully violating” anti-money laundering requirements of the Bank Secrecy Act.

Lone Star National Bank based in Pharr, Texas took on “a Mexican financial institution” as a customer.

Lone Star didn’t find and use public information about the Mexican bank owner’s alleged involvement in securities fraud.

FinCEN said Lone Star also operated high-risk accounts with missing customer due diligence information.

The Mexican bank was “moving millions of dollars through Lone Star in a manner inconsistent with the parameters of a relationship which, at the outset, required greater scrutiny,” FinCEN said. 

“It also failed to verify the accuracy of assertions by the foreign bank with respect to source of funds, purpose of the account, and expected activity,” FinCEN said.

“The action underscores the dangers that institutions face when taking on international correspondence activities without properly equipping themselves to manage such business,” FinCEN said.

Lone Star violated Section 312 of the USA PATRIOT Act which imposes specific due diligence obligations with respect to correspondent banking.

“Lone Star plainly failed to ask obvious due diligence questions in connection with its foreign bank account relationship, and did not follow up on inconsistencies in answers to the questions that it did ask,” FinCEN Acting Director Jamal El-Hindi said in a statement Tuesday.

“Smaller banks, just like the bigger ones, need to fully understand and follow the 312 due diligence requirements if they open up accounts for foreign banks. The risks can indeed be managed, but not if they are ignored,” El-Hindi said.

Despite being under a federal regulatory consent order since 2012, Lone Star continued to have “severe programmatic anti-money laundering deficiencies” through 2012, 2013, and 2014. 

In 2015, the Office of the Comptroller of the Currency fined Lone Star $1 million.

FinCEN credited that payment against its civil penalty, which reduced Lone Star’s payment to FinCEN to $1 million.

FinCEN said Lone Star has ended the correspondent banking activities that caused the problems. It hired outside consultants to do independent testing and to conduct customer due diligence and suspicious activity lookbacks.

Lone Star also expanded its compliance function.

FinCEN’s assessment order against Lone Star National Bank is here (pdf).

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

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