The details: From at least 2008 through 2014, Capital One offered banking services to a group of between 90 to 150 check cashers in the New York and New Jersey area. The bank “was aware of several compliance and money laundering risks associated with banking this particular group, including 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,” FinCEN said in its press release.
Despite these warnings, Capital One, through its check cashing group, “often failed to detect and report suspicious activity by the check cashers themselves, even as it detected and reported activity by the check casher’s customers,” FinCEN said. The bank admitted that it failed to file thousands of suspicious activity reports (SARs), “even when it had actual knowledge of criminal charges against specific customers,” and lapsed on filing currency transaction reports (CTRs) on approximately 50,000 reportable cash transactions representing over $16 billion in cash handled by its customers.
FinCEN described Capital One’s process for investigating suspicious transactions as “weak.” The bank’s deficiencies in the area caused millions of dollars in suspicious transactions to go unreported in a timely and accurate manner, “including proceeds connected to organized crime, tax evasion, fraud, and other financial crimes laundered through the bank into the U.S. financial system,” the regulator said.
“The failures outlined in this enforcement action are egregious,” said FinCEN Director Kenneth Blanco in a statement. “Capital One willfully disregarded its obligations under the law in a high-risk business unit.”
Remedial measures: Capital One self-reported and back-filed over 50,000 unfiled CTRs, voluntarily commenced a lookback on transactions not previously captured, and voluntarily exited the check cashing business. Moreover, according to settlement documents, the bank “invested considerably in integrating and enhancing its AML (anti-money laundering) program over the past several years under new AML leadership, including more than tripling its AML budget and staff since 2014.” It also provided FinCEN with “voluminous and well-organized documents, made several presentations of its findings and signed several agreements tolling the statute of limitations during this investigation.”
Compliance lesson: The fine against Capital One comes months removed from last year’s FinCEN Files leaks, which proved the importance of writing proper SARs amid the millions received by FinCEN each year. The regulator has since been ordered by Congress to conduct a formal review of its rules regarding the filing of such forms.
Regarding the Capital One case, Blanco warned that “these kinds of failures by financial institutions, regardless of their size and believed influence, will not be tolerated.” In addition, FinCEN said it “strongly encourages financial institutions and other businesses and individuals subject to the BSA to self-disclose any violations of FinCEN’s regulations and cooperate with its enforcement investigations.”