Money Laundering, Terrorism and Financial Institutions - USA Patriot Act Monitor

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06/9/2010 Savings Bank Had Numerous MSB Customers, Yet Did Not Distinguish Customers with Heightened Risks

Pamrapo Savings Bank of Bayonne, New Jersey, has been fined $1 million for Bank Secrecy Act violations. Reading the enforcement action, one wonders why the fine was so low. Pamrapo Savings was examined by the Office of Thrift Supervision, which made a number of increasingly adverse findings and finally issued a Cease and Desist Order. According to FinCEN, Pamrapo lacked internal controls, had unqualified personnel performing, or attempting to perform, BSA compliance, “relatively non-existent training,” and unsatisfactory independent testing.

Pamrapo routinely conducted cash transactions with a transaction code originally intended to process employee transactions. Using this code meant that transactions were being conducted without capturing even basic customer identification information, such as names and account numbers. This also meant, according to FinCEN, that Pamrapo had no way of determining which customer or individual was conducting cash transactions, such as purchasing monetary instruments or cashing checks, and no way to track cash transaction activity. Since Pamrapo had at least 37 money services businesses as clients—only check cashers were being prevented from opening accounts—the entire purpose of the AML rules was being thwarted.

Pamrapo’s Large Cash Transaction Report (LCTR) was the only report being used by bank personnel to file currency transaction reports (CTRs). Since the transaction code originally intended for employee transactions did not show up on the LCTR, a great many transactions were not being monitored for CTR filings at all. Pamrapo had no system in place to check for cash transactions below $10,000, where multiple transactions would indicate structuring. Even when CTRs were filed, in 67% of the cases they were not filed on time by BSA rules. Suspicious activity reports were also often not being filed, or being filed late.

Subpoenas were ignored. Independent audits were conducted by internal staff with little or no formal BSA training or relevant experience. The BSA officer was a full-time branch manager whose monitoring of the LCTR was manual. OTS regulators were told that Pamrapo’s Board of Directors gave strong consideration to brining in a third party to evaluate the bank’s BSA program. FinCEN found this was not true. The Board had not been informed of the OTS recommendation to use an outside auditor. It seems that Board was not on top of matters either. FinCEN Enforcement Action 2010-3 (June 1, 2010).

Given the growth of specialized audit groups that offer relatively inexpensive but efficient services for different types of financial institutions (no longer a new development), one wonders why these sorts of things continue to happen.

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