FinCEN Flexes Its Muscle with $390 Million BSA Penalty
Against Capital One National Association
Action Comes on Heels of Passage of the Most Robust AML Reforms in 20 Years
On January 15, 2021, the Financial Crimes Enforcement Network (FinCEN) announced that it had reached a settlement with Capital One National Association (Capital One) under which Capital One agreed to pay $390 million in civil monetary penalties for willful and negligent violations of the anti-money laundering (AML) provisions of the Bank Secrecy Act (BSA).
The $390 million penalty is reflected in an Assessment of Civil Money Penalty (the Assessment) pursuant to which Capital One admitted to failing to implement an effective AML program in connection with a business unit known as the Check Cashing Group, which was comprised of between 90 to 150 check cashing establishments in New York and New Jersey that Capital One acquired in 2008.
According to the Assessment, Capital One admitted that, during the period from 2008 to 2014, it willfully failed to file suspicious activity reports (SARs) in numerous circumstances and negligently failed to file tens of thousands of currency transaction reports (CTRs) in connection with the activities of the Check Cashing Group.
Under the BSA, financial institutions are required to assist law enforcement with the detection and prevention of money laundering and other criminal activity through various reporting mechanisms. Financial institutions are required to file CTRs on currency transactions, or a series of related transactions, exceeding $10,000.[1] A bank is required to file a SAR with FinCEN whenever it detects a known or suspected violation of federal law by a customer, suspicious activity related to money laundering activity, or a violation of the BSA.[2] A transaction qualifies as “suspicious” if it: (1) involves funds derived from illegal activities, or is conducted to disguise funds derived from illegal activities; (2) is designed to evade the reporting or recordkeeping requirements of the BSA or implementing regulations; or (3) has no business or apparent lawful purpose or is one in which the customer would not normally be expected to engage, and the bank knows of no reasonable explanation for the transaction after examining the available facts, including background and possible purpose of the transaction.[3] The failure to file SARs or CTRs carries civil, and in some cases criminal, penalties.[4]
The BSA and its implementing regulations also require that financial institutions establish and maintain AML programs and maintain procedures for monitoring compliance with BSA regulations.[5] At a minimum, such programs must include: (1) the development of internal policies, procedures and controls; (2) the designation of a compliance officer; (3) an ongoing employee training program; and (4) an independent audit function to test programs. Willful violations of the AML program requirements also carry civil monetary penalties and even possible criminal prosecution.[6]
The Assessment makes abundantly clear FinCEN’s conclusion that Capital One turned a blind eye to its reporting obligations in what was a “high risk business unit” (i.e., the Check Cashing Group). FinCEN found that, despite being aware of criminal and regulatory scrutiny into several underlying check cashing establishments, Capitol One failed to implement an effective program for filing SARs. Among other things, Capital One acknowledged that it willfully failed to detect and report suspicious activity by the check cashing establishments even though it had filed SARs with respect to their underlying customers, and that it failed to file SARs when it had knowledge of specific criminal activity on the part of a check cashing customer. According to FinCEN: “Capital One was aware of . . . warnings by regulators, criminal charges against some of the customers, and internal assessments that ranked most of the customers in the top 100 of the bank’s highest risk customers for money laundering.” Capital One also acknowledged negligently failing to file CTRs for “approximately 50,000 reportable cash transactions representing over $16 billion in cash handled by its Check Cashing Group customers.”
According to the Assessment, Capital One’s violations “resulted in the failure to accurately and timely report millions of dollars in suspicious transactions, including proceeds connected to organized crime, tax evasion, fraud and other financial crimes laundered through the Bank into the U.S. financial system.” The Assessment suggests that the penalty would have been much steeper but for Capital One’s “extensive remediation and cooperation.”
FinCEN’s announcement of its action against Capital One comes on the heels of the passage of the Anti-Money Laundering Act of 2020 (the “AMLA”) as part of the National Defense Authorization Act of 2020 (“NDAA”). Widely regarded as implementing the most robust AML reforms in 20 years, the AMLA significantly enhances the role and authority of FinCEN in the enforcement of the BSA’s AML laws and in the investigation of financial crimes more generally. The penalties imposed on Capital One send a clear message to the financial community that they must take BSA compliance seriously or face steep consequences. In these times, financial institutions would be well advised to take steps to ensure that they have AML and BSA-reporting programs that are in compliance with the BSA’s requirements.
A copy of FinCEN’s Assessment of Civil Money Penalty can be found here.
A copy of its public announcement can be found here.
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[1] 31 U.S.C.§ 5313; 31 C.F.R. § 1010.311.
[2] 31 U.S.C.§ 5318(g); 31 C.F.R. § 1020.320; 12 C.F.R. § 21.11.
[3] 31 C.F.R. § 1020.320 (a)(2)(i) – (iii).
[4] 31 U.S.C.§§ 5321(a)(1), (a)(6); 31 C.F.R. § 1010.820(f); 31 U.S.C. § 5322.
[5] 31 U.S.C.§ 5318(h); 31 C.F.R. § 1020.210; 12 C.F.R § 21.21.
[6] 31 U.S.C.§ 5321(a)(1); 31 U.S.C. § 5322(b); 31 C.F.R. 1010.840.
