AML Fine Sends a Message to Banks

Regulators Cracking Down on Violators
AML Fine Sends a Message to Banks
Miami-based Pacific National, which has approximately $377 million in assets, was slapped with a $7 million penalty for violations to the Bank Secrecy and USA Patriot acts.

Pacific National, without admitting or denying the allegations, agreed to pay $7 million for the civil money.

Penalties against the bank came from the Office of the Comptroller of the Currency and the Financial Crimes Enforcement Network for not adequately identifying, monitoring and reporting suspicious activities, as well as not sufficiently monitoring foreign correspondent bank accounts and conducting sufficient due diligence. The bank also reportedly failed to audit high-risk areas as well as transactions conducted in those areas.

"Banks must devote appropriate resources commensurate with their risk profile and must take prompt and necessary steps to comply with the OCC enforcement actions, to ensure compliance," said John Walsh, acting Comptroller of the Currency, in an issued statement about the fine.

'Substantial' Fine

"What we are seeing here is really just consistency from the regulatory process," says Dr. Tony Wicks, director of anti-money laundering solutions for AML and fraud-detection provider NICE Actimize. "In this particular instance, there was a number of factors that predicated the fine. I think it really just reminds people that it is key and critical to respond to these regulatory issues."

Fines for gaps in AML practices are becoming more severe. Last month, Salt Lake City-based Zions Bank ($50 billion in assets) was fined $8 million for similar violations. And in October, HSBC North America (USA) ($186 billion in assets) got slapped by the OCC with a cease and desist order for deficiencies in SARS, customer due diligence relating to foreign affiliates and risk assessment, and the monitoring of bulk-cash purchases and international funds transfers.

Wicks says the Pacific National case reflects a regulatory trend toward increasingly steep penalties for violations to suspicious-activity-report filing and other BSA requirements. "The trend here is the level of fines that the regulators are putting out there," he says. "$7 million does not sound that great, but for the size of an institution like Pacific National, it is substantial. The regulators are saying, irrespective of size, everyone needs to meet the requirements."

Due diligence is a big part of what regulators are looking for, says Zayd Sukhun, a certified AML specialist for Dubai-based compliance and payments-solutions provider EastNets. Global political unrest has upped regulators' expectations for banks to streamline fraud-detection tools and techniques, he says.

"Regulators are looking for more efficient monitoring, and now banks are going to be expected to have more streamlined fraud-detection tools," Sukhum says. "If you have real-time monitoring or forensics, you want to use it for your sanctions monitoring, for your anti-fraud prevention, everything," he says. "Centralizing your data is so important, for fraud detection, as well as knowing your customer."

The Value of KYC

Wendy Chapman, security manager for Atlanta-based Citizens Trust, says her community bank has spent the last year focusing on just that kind of streamlining between AML processes and fraud-detection. [See, AML Case Study: New Way to Fight Fraud.]

"We had been doing a manual process," she says. "We knew we were missing stuff, because there was no way for us to assess all of the information." In November, Citizens Trust launched what it calls FRAML -- a combined fraud-detection and AML tool from Verafin. FRAML, a behavior-based software, leverages artificial intelligence and pattern recognition to identify suspicious behavior.

Regardless of size, Wicks says regulators expect all institutions to have the same controls and technologies in place. "Smaller institutions need to deploy the same types of technologies that the larger institutions need to deploy," he says.


About the Author

Tracy Kitten

Tracy Kitten

Director of Global Events Content and Executive Editor, BankInfoSecurity & CUInfoSecurity

A veteran journalist with more than 20 years' experience, Kitten has covered the financial sector for the last 13 years. Before joining Information Security Media Group in 2010, where she now serves as director of global events content and executive editor of BankInfoSecurity and CUInfoSecurity, she covered the financial self-service industry as the senior editor of ATMmarketplace, part of Networld Media. Kitten has been a regular speaker at domestic and international conferences, and was the keynote at ATMIA's U.S. and Canadian conferences in 2009. She has been quoted by CNN.com, ABC News, Bankrate.com and MSN Money.




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