In a harbinger of future enforcement actions surrounding AML compliance program violations, the Treasury Department’s The Financial Crimes Enforcement Network announced a $390 million settlement with Capital One for weaknesses in its AML program.
Capital One was credited $100 million for its 2018 payment to the Office of the Comptroller for AML violations involving its check cashing business unit. The FinCEN enforcement settlement involved conduct from 2008 to 2014 for Capital One’s check cashing business, which it terminated in 2014.
Capital One acknowledged that from 2008 to 2014 that it failed to maintain an effective AML program and to file thousands of suspicious activity reports (SARs) and currency transaction reports (CTRs). FinCEN concluded that these violations were “willful and negligent.”
The factual statement outlines a blatant disregard for laundering of Capital One check cashing business transactions involving organized crime, tax evasion, fraud and other financial crimes. FinCEN labeled these violations as “egregious.”
In 2008, Capital One entered the high-risk check cashing business in New York and New Jersey with approximately between 180 and 300 storefront locations. Capital One entered the markets through the acquisition of North Fork Bank, which began to operate under the Capital One name in 2008. Prior to the acquisition, banking regulators alerted Capital One to weaknesses and deficiencies in North Fork Bank’s AML program and to the risky nature of the check cashing business.
Capital One was fully aware of the high-risk nature of this business given its internal risk assessment process which ranked several of the check cashing clients in the top 100 of the bank’s highest risk customers. Despite this preliminary assessment and ongoing awareness of its high-risk client base, Capital One maintained only a weak suspicious activity review process, which ultimately lead to widespread failures to file SARs as mandated under the Bank Secrecy Act. Even when it was aware of customers had pending criminal charges against them, Capital One failed to file SARs for questionable check cashing activities, including a member of the Genovese organized crime family who ultimately plead guilty to money laundering in 2019.
Initially, Capital One hired BSA officers to build out an enterprise-wide AML program, including policies, procedures, and process controls. FinCEN noted that these controls and procedures were inadequate and plagued by a number of technical failures that were not promptly addressed. In particular, FinCEN noted that the BSA officers accepted dubious explanations from the business personnel, which ultimately resulted in a failure to guard against money laundering and other criminal and suspicious activity.
Customer Due Diligence
FinCEN described how Capital One included check cashing customers in its enterprise-wide automated AML monitoring system, which rated customers based on…