Union Bank of California Forfeits $21M, Fined $10M for BSA Violations
By Glenn Hopkins, Director of Financial Services
The Department of Justice announced yesterday that Union Bank of California has “entered into a deferred prosecution agreement on charges of failing to maintain an effective anti-money laundering program and will forfeit $21.6 million to the U.S. government.” Additionally, both the Financial Crimes Enforcement Network (FinCEN) and the Office of the Comptroller of the Currency (OCC) docked Union Bank another $20 million, but let the civil penalty be satisfied with a $10 million payment.
The press release put Union Bank through a virtual perp walk, with spokespeople for DOJ, IRS and DEA all piling on:
“Banks that knowingly disregard their legal obligations under the Bank Secrecy Act are easily exploited by drug cartels and other criminals,” said Assistant Attorney General Alice S. Fisher of the Criminal Division. The Department of Justice will continue to work to make sure banks follow the law and put these vital anti-money laundering programs in place.”
“Our American economy depends on the integrity of financial institutions and the work of those institutions to ensure compliance with anti-money laundering regulations,” stated Eileen Mayer, Chief, IRS Criminal Investigation. “This investigation clearly demonstrates law enforcement’s commitment to enforcing these regulations, which assist in our efforts to detect and halt criminal activity like drug trafficking.”
“In a multi-billion dollar illegal drug market, the law requires and DEA depends on financial institutions to know their customers and practice due diligence,” said Drug Enforcement Administrator Karen P. Tandy. “When banks fail to uphold their responsibilities, they turn their legitimate business into a currency stash house used by international drug traffickers to line their pockets, fuel more trafficking, and corrupt government officials and global economies. The Union Bank of California will pay the price for its failure with a hefty fee.”
That Karen Tandy sure has a way with her quotes. Back in August when American Expressed was fined $65 million — the largest money laundering penalty paid by a U.S. financial institution, according to Forbes — Ms Tandy sounded like the narrator for the old Untouchables series (see our post.)
Besides the hefty fee, Union Bank is surely reeling with the damage done to the institution’s reputation. There’s little chance that this fine and attendant publicity will cause a run on the bank like the one $2 billion in panicky withdrawals that Northern Rock suffered in the UK last Friday. Still, negative news has a cumulative effect that can make bank customers nervous, irrational even.
Here’s my main question regarding this whole affair: What could Union Bank have done differently to avoid this whole mess?
“In 2005, the bank signed a memorandum of understanding with authorities under which it was required to improve its systems for detecting such activities and notifying authorities. The comptroller’s office said an examination last year found that the bank’s compliance was still ineffective, in violation of the terms of the memo. Union Bank said it expected to meet the conditions of the deferred-prosecution agreement within the one-year time frame, spokesman Stephen Johnson said in a telephone interview.
“‘We still have work to do,’ he said.”
So they received a warning, took a year to fix all the compliance issues and they were still penalized? The Monday morning quarterback in me would hazard to guess that Union Bank’s compliance officers went into high gear when they were warned. Union Bank is the nation’s 27th largest bank and they’re not stupid. I’m sure they did everything in the power to comply with the BSA, but the law as it stands is too ambiguous. I’m sure they bent over backwards to Know Your Customer (KYC) and Know Your Customer’s Customer (KYCC) but in the end they didn’t Know Exactly What Federal Banking Regulations Require You to Know. (KEWFBRRYK).
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