Penalties Abound When Bank's Fail to Comply With the Bank Secrecy Act

One Iowa bank recently consented to the issuance of an Order to Cease and Desist by the FDIC as a result of the bank’s failure to comply with certain provisions under the Bank Secrecy Act (“BSA”).  The bank’s violations and unsound banking practices were numerous: 

• operating without adequate oversight by the bank’s board of directors and management to prevent violations of the BSA;
• failing to develop and administer a BSA compliance program;
• operating without an effective system of internal controls or independent testing to ensure compliance with the BSA;
• operating without adequate BSA training program;
• operating without an effective customer identification system;
• failing to develop and implement a system for detecting and reporting suspicious activity;
• failing to comply with the Financial Recordkeeping and Reporting of Currency and Foreign Transactions regulation; and
• failing to file Suspicious Activity Reports.

As a result, the bank was given specific orders to designate an officer to coordinate the bank’s BSA compliance program, review high-risk accounts and transactions and file any necessary CTRs and SARs, and report its findings to the FDIC.  The bank was further required to perform an assessment of its banking operations regarding attempts to launder money and conduct criminal activities, review its BSA risk assessment annually and record that in its board of directors minutes, develop a BSA program and provide for training, and establish policies and procedures.  The bank was also mandated to develop written policies regarding its Customer Identification Program and policies to report suspicious activities.

The Board of Directors was required to document violations which were not eliminated or corrected within a 90-day period and, perhaps most embarrassingly of all, the bank was required to furnish a copy of the Cease and Desist Order to all of its shareholders.

While the order did not indicate a monetary penalty, one would assume it would be forthcoming if the bank continued to fail to comply.  This is posted not to ostracize any particular bank, but merely to show common BSA violations and the remedies for those violations. The lesson learned here is to ensure that your bank has developed and implemented adequate policies and procedures for compliance with the BSA and SAR filing requirements, among other things. 

For more information, please contact Mary A. Zambreno.