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FinCEN applies USD2m civil penalty to US bank for correspondent banking compliance failures under the USA PATRIOT Act

BIScom Subsection: 
Editorial Staff

The Financial Crimes Enforcement Network (FinCEN), which also has a regulatory function, has applied a USD3 million civil money penalty against Lone Star National Bank of Pharr, Texas, for failing to properly comply with the requirements of the Bank Secrecy Act - as found in s312 of the USA PATRIOT Act.

In a statement, FinCEN said "Many of the lapses in Lone Star’s Bank Secrecy Act compliance were previously covered in an earlier action by the Office of the Comptroller of the Currency (OCC), but FinCEN’s action focusing on the bank’s a312 breaches specifically highlights the need for a financial institution to avoid taking on international business for which it is not prepared."

The failings were fundamental: "“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,” said FinCEN Acting Director Jamal El-Hindi.

The action centres on a correspondent relationship with a bank in Mexico. While the physical border may be porous, at least unless and until President Trump builds his (in)famous wall, the banking border is not and is subject to the same legal obligations as dealing with any non-US institution. And (this is not a facetious comment) no matter what some Texans argue, Texas is not a "State," it is merely a "state" within the USA and subject to relevant Federal law.

It was found that Lone Star was moving millions of dollars through its correspondent relationship without raising the risk assessment for that relationship and acting accordingly.

It's not as if Lone Star had no idea what to do: it had been subject to regulatory scrutiny under a series of agreements relating to its counter-money laundering compliance and risk management failures in 2012, 2013 and 2014. In 2015 it was assessed to a civil money penalty by the Office of the Comptroller of Currency. That was USD1 million.

While the new FinCEN penalty amounts to USD2 million, the penalty already paid to the OCC will be credited to the FinCEN penalty meaning that only an additional USD1 million will be paid.

One might wonder why a recidivist entity continues to be authorised to conduct banking business but FinCEN makes it clear that the bank has taken great steps to sort out its previous shortcomings : "FinCEN recognises that Lone Star has expended considerable resources to respond to the findings regarding its BSA program and to promote compliance with the OCC’s Consent Order. Lone Star is no longer engaging in the correspondent banking activities for which it was ill prepared. The bank has contracted outside consultants to conduct independent testing, conduct customer due diligence and suspicious activity look-backs, and has expanded its BSA compliance organisation."