Ocean Bank Fined $10.9 Million

Regulators Cite AML, BSA Violations

By , August 24, 2011.
Ocean Bank Fined $10.9 Million

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he Federal Deposit Insurance Corp., along with the Financial Crimes Enforcement Network and the State of Florida Office of Financial Regulation has fined Miami-based Ocean Bank [$3.6 billion in assets] $10.9 million for violations of the Bank Secrecy Act as well as other anti-money laundering laws and regulations, such as failure to file currency transaction reports.

Ocean Bank, Florida's largest state-chartered bank, failed to implement an effective BSA/AML Compliance Program, with internal controls "reasonably designed to detect and report money laundering and other suspicious activity in a timely manner," according to a statement issued by the FDIC. Regulators determined that the bank did not conduct adequate independent testing to meet requirements for suspicious activity reporting. The bank also reportedly failed to hire staff appropriately trained in BSA compliance and requirements.

Ocean Bank consented to the penalty, without admitting or denying the FDIC's and FinCEN's findings.

AML expert Kevin Sullivan says banks and credit unions can expect fines to continue steepening, especially for the mid-sized and smaller institutions. Regulators are taking BSA compliance and SARs seriously. "These major fines all start to sound like a broken record: Inadequate AML program. Inadequate testing. Inadequate training. I know I've heard it before. Perhaps, if some financial institutions stop treating security, fraud, AML, compliance like the red-headed stepchild and realize that those units, while they will never be profit-making sure as heck can be profit-keeping, most certainly can be reputation-saving."

According to regulators, 28 percent of Ocean Bank's customers reside outside the United States in high-risk geographies susceptible to money laundering, including Venezuela. The bank established direct relationships in the U.S. for politically exposed persons, also known as PEPs, such as consulates and established "bearer share" corporations. But the bank had insufficient policies, procedures and systems in place to assess and mitigate the risks of narcotics-related money laundering activity and ensure the detection and reporting of suspicious transactions. [See How to Marry AML and Fraud.]

"Effective Bank Secrecy Act/anti-money laundering programs commensurate with the risk profile of the institution is paramount in protecting our financial system and individual banks from harm," said Sandra L. Thompson, director of the FDIC's Division of Risk Management Supervision, in a statement issued by the FDIC and FinCEN. "This penalty underscores the significance for banks to have strong internal systems and controls to detect and report suspicious activity and ensure compliance with Bank Secrecy Act requirements."

Regulators Scrutinize Certain Cross-Border Activity

By the end of 2006, Ocean Bank reportedly had a backlog of more than 100,000 alerts that had been generated by its AML monitoring system. That backlog was alarming, regulators noted, because only 15 percent of the bank's customer accounts were automatically being monitored. The majority of the alerts were cleared by bank staff that was "ill-trained," according to the FinCEN assessment. "As a result, few suspicious activity reports were filed by the Bank, relative to the number of alerts generated," the assessment states.

David Kwan, director of product management for NICE Actimize, says regulators have heightened the attention they pay to correspondent banking business and cross-border money movement.

"Over the last few months, we've seen a focus on the correspondent banking business; historically, that has not gotten a lot of attention from the regulators," Kwan says. "But equally important is the fact that the correspondent-banking activity is international, which can involve high-risk parties or high-risk locations."

The other concern: cross-border money movement, especially when it relates to the movement of cash. "Recent activity in drug enforcement at the Mexican-U.S. border has also received a lot of scrutiny from regulators in recent months," Kwan says. "In terms of what they're looking for, they are taking a very keen interest in the bank's due diligence, customer due diligence, and in periodic review and ongoing due diligence."

Follow Tracy Kitten on Twitter: @FraudBlogger

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