Merchants Bank of California, N.A.
The OCC identified deficiencies in the bank’s compliance with the Bank Secrecy Act (BSA) that resulted in violations of consent orders the bank entered into on June 23, 2010 (EA 2010-132), and June 26, 2014 (EA 2014-084), as well as a violation of 12 C.F.R. § 21.21, procedures for monitoring BSA compliance. The consent orders required the bank to correct deficiencies in all four pillars of its BSA program (the system of internal controls, independent testing, a designated individual or individuals responsible for coordinating and monitoring BSA/AML compliance, and training for appropriate personnel). The penalty reflects several factors, including the scope and duration of the bank’s failure to comply with the previous consent orders and the violation of 12 C.F.R. § 21.21 through and including May 25, 2016. The bank has paid the $1 million civil money penalty to the U.S. Treasury.
According to FinCEN, which imposed a $7 million civil money penalty on the bank, "Merchants’ failures allowed billions of dollars to flow through the U.S. financial system without effective monitoring to adequately detect and report suspicious activity. Many of these transactions were conducted on behalf of money services businesses (MSBs) that were owned or managed by Bank insiders who encouraged staff to process these transactions without question or face potential dismissal or retaliation. Bank insiders directly interfered with the BSA staff’s attempts to investigate suspicious activity related to these insider-owned accounts.
"Merchants specialized in providing banking services for check-cashers and money transmitters. However, it provided those services without adequately assessing the money laundering risks and without designing an effective AML program. Merchants also provided its high-risk customers with remote deposit capture services without adequate procedures for monitoring their use.
"Merchants failed to provide the necessary level of authority, independence, and responsibility to its BSA officer to ensure compliance with the BSA as required, and compliance staff was not empowered with sufficient authority to implement the Bank’s AML program. Merchants’ leadership impeded BSA 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. Merchants’ interest in revenue compromised efforts to effectively manage and mitigate its deficiencies and risks.
"In addition, Merchants banked customers located in several jurisdictions considered to be high-risk but did not identify these customers as foreign correspondent customers and therefore did not implement the required customer due diligence program. In a three-month period, Merchants processed a combined $192 million in high-risk wire transfers through some of these accounts."
The bank's payment of the penalty imposed by the OCC will be credited towards satisfaction of the FinCEN penalty.