The FDIC has hit CBW Bank, an institution with assets worth $90 million in Weir, Kansas, with a $20,448,000 civil penalty and an indictment for failing to adequately monitor transactions for signs of money laundering.
The bank disputes the allegations. It filed a complaint last month in a federal court in the District of Kansas to dismiss the FDIC action, said Allen Denson, a partner at Morgan Lewis, who is counsel to CBW. She also requested a hearing before the agency.
CBW was one of the first banks to offer banking as a service to fintechs. Today, it provides basic banking services to local Weir residents, according to the FDIC, but also operates an international money transfer business worth billions of dollars and generates most of its revenue from fee-based correspondent banking services for foreign financial institutions.
During the FDIC review period (December 2018 through August 2020), CBW provided international banking services for more than 30 foreign financial institutions, six money services companies, and financial services companies in Central and South America, Europe, Africa, and the Middle East.
But the bank failed to implement Bank Secrecy Act controls, did not independently test its anti-money laundering system, did not have an adequately trained and authorized BSA offering and did not devote the resources necessary to comply with anti-money laundering -money laundering legislation. rules for money laundering and combating the financing of terrorism, the regulator said in the message published on Friday.
For example, according to the FDIC, CBW provided dollar repatriation services to foreign banks, including millions of dollars in bulk shipments of cash from Mexico for five Mexican-chartered banks and a money services company.
“Bulk cash shipments from Mexico are of significant concern to U.S. law enforcement because they are often associated with money laundering associated with drug trafficking activities,” the FDIC wrote in its notice.
To monitor these transactions, CBW used homegrown software called Context Engine. But the reports generated by the software were inadequate and did not raise much-needed red flags, according to the FDIC.
Context Engine’s bulk cash transfer reports “did not include any analysis of where the deposited funds were transferred to or from, or the identities of the counterparties to identify potentially suspicious patterns or activities,” the regulator said in its notice. The bank has not filed any suspicious activity reports on these bulk shipments, the FDIC said.
CBW also provided correspondent services to foreign banks in high-risk jurisdictions such as Lebanon, Brazil and Cyprus, according to the FDIC notice, but its AML software, a program called Context Engine, did not detect any suspicious transactions in this activity.
One customer used account numbers from five originators and one beneficiary to process more than 5,000 transfers for hundreds of different entities totaling $400 million over an eight-month period and used concentration accounts to pass those transfers on behalf of international money transfer and currency companies. to countries in South America, according to the FDIC, but none of these activities were flagged.
“The FDIC continually pointed out that their Context Engine had missed the forest for the trees,” said Sarah Beth Felix, CEO of Palmera Consulting and co-founder and chief AML officer at Acceleron Bank, a de novo in Vermont. “Basic monitoring of remote deposit collection activities, telebanking activities, and foreign correspondent banking activities were all not programmed into this Context Engine. Typologies that we had all known about for years were not included in the system.”
Even when the software indicated something was wrong, the four analysts assigned to review the thousands of suspicious daily messages “didn’t know what they were looking for,” Felix said.
According to the FDIC, CBW’s AML officers did not have the experience necessary for the task. One of them told examiners that he had no previous banking or AML experience and that he trusted the vice president of correspondent banking, responsible for managing customer relationships, to understand CBW’s business. He told the FDIC that he was “as concerned about losing a customer as he was about identifying and reporting suspicious activity.”
Because they didn’t have the right people in the AML department, “they didn’t know what they were missing” from the Context Engine reports, Felix said. “And they weren’t curious enough to find out if they missed something. Curiosity is a necessary trait in the fight against money laundering.”
According to the FDIC, the AML personnel reported to the bank’s teller, rather than the BSA officer. And the BSA officer did not have the authority to file SARs, having to go through a committee that often relied on the vice president of correspondent banks’ explanation as to why a transaction did not require a SAR.