FinCEN Hands Out Personal Fine of $450,000

March 13, 2020 4 minute read

Yes Bank said yes to the wrong customers, there’s a new levy planned for banks in the UK and US personal fines hit eye-watering levels.

We share our financial regulatory highlights from the week of 9 March 2020.

Just Say…Yes?

Banks should be wary of building a better form of money laundering. They should be just as certain that they’re not committing money laundering offenses themselves.

Yes Bank’s chief, Rana Kapoor, has been arrested for just that. The arrest happened mere days after India’s central bank, the Reserve Bank of India (RBI) took control of the company. Investigators from India’s Enforcement Directorate allege that Kapoor has garnered $581 million from criminal activity and is refusing to cooperate.

Kapoor has denied all charges.

The banker also rejected investigators’ claims that he was being uncooperative, in court he made an impassioned statement that he was willing to help despite being sleep-deprived.

Enforcement Directorate representatives have alleged that kickbacks disguised as loans have been made to a company run by Kapoor’s three daughters by utilizing undervalued assets as collateral.

The RBI took control of Yes Bank following the lender taking on bad loans while failing to meet capital regulatory requirements. Yes Bank attempted to combat this through fundraising but was unable to generate enough cash.

Yes Bank has faced mass panic in response to its problems. Customers are queuing to withdraw money but have been limited to the equivalent of $630 for the month. The limitation is to give the RBI time to strategize and formulate a plan to prevent the bank from slipping into administration.

Budget Bonanza

In a budget presentation that stopped just short of money-guns, the UK government is keen to show a commitment to digital finance. But that commitment has come with an understanding of the need to implement the reforms decided upon in the Economic Crime Plan.

The UK government has confirmed it plans to implement a levy on firms under the Money Laundering Regulations 2017, presumably through a statutory instrument. The Economic Crime Plan reforms were made in conjunction with selected businesses from the financial sector so there’s a strong likelihood that they’ll be possible to implement without being overly onerous but their efficacy remains to be seen.

The levy is set to be consulted on in the spring with no clear date on when it’ll be implemented but it’s expected to come into force in 2022/23. The levy is expected to raise up to $130 million which will all be spent on eliminating dirty money from the UK financial system.

£14 billion is also being assigned to Companies House for much-discussed reform and to equip the registry with the functions it needs to tackle financial crime.

The UK government is presumably doing this in an attempt to keep London as the fintech hub of the world and to protect its place as one of the largest, if not the largest, financial center globally. It’ll be interesting to see if it manages to do so during a time that global markets are suffering and are forecasted to become worse.

FinCEN Fines US Compliance Officer $450,000

FinCEN recently announced its first civil penalty against a bank compliance officer. A former U.S. Bank employee, Michael LaFontaine, was personally fined $450,000 for negligence in preventing Bank Secrecy Act (BSA) violations while employed with the bank.

LaFontaine worked for U.S. Bank from early 2005 to mid-2014 and held several senior-level roles during that time, including as the bank’s chief compliance officer and chief operational risk officer. FinCEN asserts that there were several flaws in the bank’s anti-money laundering compliance program during that time.

This included the use of transaction monitoring software that had been configured improperly and capped the number of alerts generated, which hampered the bank’s ability to detect potentially fraudulent activity and file suspicious activity reports for law enforcement to investigate.

The bank also failed to appropriately staff its AML department, leading to a situation where employees were “stretched dangerously thin” and unable to review alerts in a timely manner.

Subordinates repeatedly raised red flags over flaws in the bank’s compliance program. But according to FinCEN, LaFontaine failed to take appropriate action to remedy the situation despite the concerns expressed by staff and even warnings from the Office of the Comptroller of the Currency (OCC) that capping the number of alerts could lead to enforcement action.

The agency also noted that there had been public action taken against Wachovia in 2010 for a similar issue, which should have served as yet another warning that U.S. Bank’s own practices could come under scrutiny.

While U.S. Bank was separately fined — to the tune of $613 million — for insufficient AML/CFT controls in early 2018, the fine FinCEN imposed on LaFontaine was a direct result of his refusal to take these warnings seriously. Just as Wachovia should have served as a warning to U.S. Bank, this should also underscore the fact that individuals can be found personally liable for lapses in AML compliance, not just financial institutions.