New York bank fined for anti-money laundering failures
On December 21, 2020, the FDIC ordered New York-based Apple Bank for Savings to pay a fine of $12.5 million. The order was made public on January 29, 2021.
The fine was assessed due to the bank’s failure to comply with the Bank Secrecy Act (BSA) and with an FDIC Consent Order issued effective December 16, 2015, and terminated May 29, 2020.
In explaining the fine levied, the Order to Pay states:
After taking into account the Consent Agreement, the appropriateness of the penalty with respect to the financial resources and good faith of the Bank, the gravity of the violations by the Bank, the history of previous violations by the Bank, and such other matters as justice may require, the FDIC has determined that a civil money penalty in the amount of $12,500,000 is appropriate to be assessed against the Bank.
At the heart of the issue lies the Consent Agreement to which the bank agreed in 2015 as a result of problems with BSA compliance dating back to 2014. In that agreement, the Bank has consented, without admitting or denying any charges of unsafe or unsound banking practices or violations of law or regulation relating to weaknesses in the Bank’s Bank Secrecy Act (“BSA”)/Anti-Money Laundering(“AML”) Compliance Program, to the issuance of this Consent Order…by the FDIC.
The Bank Secrecy Act is a piece of legislation dating from 1970 that was designed to prevent money laundering, i.e., the abuse of banking institutions as a means of disguising the illicit origins of the proceeds of such nefarious activities as supporting crime, financing terrorism or covering up tax evasion. The BSA places a series of reporting requirements upon financial institutions, and the 2015 Apple Bank agreement reads like a primer on the BSA’s requirements. To judge from the litany of instructions, the bank was likely remiss in informing the Office of the Comptroller of the Currency and the Office of Foreign Assets Control of questionable depositor activity. Therefore the Consent Order stipulated that the Bank shall review and enhance its policies, procedures and processes in order to detect reportable transactions and reasonably ensure that all required reports, including Currency Transaction Reports (“CTRs”), SARs, Reports of International Transportation of Currency or Monetary Instruments, Reports of Foreign Bank and Financial Accounts, and any other similar or related reports required by applicable BSA/AML laws or regulations are completed accurately and properly filed within required timeframes.
SAR is the abbreviation for Suspicious Activity Report and is a filing that banks must make for transactions in cash and negotiable securities (such as traveler's checks) for “suspicious” transactions in excess of $10,000. There are exemptions, however, and the law is notoriously unclear on what constitutes suspicious activity. Apple clearly was not sufficiently assiduous in its filings of SARs, as the 2015 agreement included the provision that the Bank shall, taking into account its size and risk profile, develop, adopt and implement policies, procedures, processes, and systems for monitoring, detecting, and reporting suspicious activity being conducted in all areas within or through the Bank; and provide for the timely, accurate, and complete filing of Suspicious Activity Reports (“SARs”) as required by law, with an appropriate level of documentation and support for management’s decisions to file or not to file a SAR.
The agreement also set up means both internal and external for verifying BSA compliance. Clearly, that was not achieved to the satisfaction of the FDIC, whence the $12.5 million fine Apple Bank is now required to pay.
Fines and enforcement actions for non-compliance with the BSA are not infrequent. On January 15, 2021, an enforcement action was filed by the Financial Crimes Enforcement Network (FinCEN) against Capital One for the huge sum of $390 million “for engaging in both willful and negligent violations of the Bank Secrecy Act (BSA) and its implementing regulations.”
The difference between the Capital One and Apple Bank cases (aside from $377.5 million) is that, whereas there is no admission of wrongdoing involved in the order to pay signed by the latter, Capital One “admitted to willfully failing to implement and maintain an effective Anti-Money Laundering (AML) program.”
The penalties for failing to comply with the BSA and AML regulation can, as the Capital One case shows, be draconian. Apple Bank’s fine, owed to the FDIC rather than assessed by FinCEN, and while obviously substantial, is clearly not appropriate for violations as severe as those committed by Capital One. (Note that there is also a difference in scale: Apple Bank posted a 2018 revenue of $340.7 million, while Capital One’s was in excess of $32 billion.)
In a prepared statement that sheds little light upon the matter, Apple Bank said that it was “committed to strong and transparent relationships with its regulators and has worked diligently and invested significant resources to respond to the FDIC’s comments.”
