U.S. Bancorp agreed to pay about $600 million to settle U.S. allegations that it failed to guard against money laundering, under a deal announced Thursday in New York.
Prosecutors said the Minneapolis-based bank failed to report suspicious activities of a longtime customer, Scott Tucker, who was using the bank to launder proceeds of a fraudulent payday lending scam. Tucker was convicted of fraud and sentenced in January to almost 17 years in prison.
Authorities also said U.S. Bancorp ignored repeated warnings from internal managers and external regulators about the inadequacy of its anti-money laundering program, and that it excluded critical information on thousands of reports about currency transfers it handled.
The banking industry has been lobbying the Trump administration to reduce compliance requirements under the Bank Secrecy Act, which governs anti-money-laundering protections. Last year, the American Bankers Association called parts of the regulations “outdated and ill-suited for identifying and preventing 21st century criminal activity and terrorist financing” and called for their streamlining or elimination.
Under the terms of the deal with U.S. Bancorp, the government agreed to defer prosecution for two years. The bank agreed to pay a $528 million penalty, including $75 million it paid the Office of the Comptroller of the Currency. It also agreed to pay an additional $70 million to the U.S. Treasury, and $15 million to the Federal Reserve Board, according to the government. As part of its deal, the bank will acknowledge its wrongdoing.
The government will dismiss the charges if the bank abides by its promises, including reforming its anti-money-laundering program.
In a prepared statement, the bank’s chief executive, Andy Cecere, said: “We regret and have accepted responsibility for the past deficiencies” in the anti-money-laundering program. The bank reserved $608 million from fourth-quarter results to cover the cost of the fine, which represents about a third of its fourth-quarter earnings. After failing 0.4 percent on Thursday, shares gained 1.1 percent to $55.71 at 12:14 p.m. on Friday.
Tucker was accused of using Indian tribes to act as sham owners of his payday lending businesses to circumvent usury laws through their legal sovereignty. His company charged interest rates of as much as 700 percent, and Tucker hauled in more than $2 billion in revenue, several hundred million of it in profit.
Tucker was one of U.S. Bancorp’s most profitable customers in the Kansas-area market where his companies were based, generating millions in fees for the bank, according to the government. His transactions began to generate suspicion internally, but executives hesitated to act. A bank investigator wrote a memo calling Tucker “quite a slippery individual” and said he “really does hide behind a bunch of shell companies.”
The bank closed his accounts in the names of tribal companies but allowed Tucker to remain a customer for two additional years, and never filed a suspicious activity report to authorities. The bank didn’t end its relationship with Tucker until it received a subpoena from federal prosecutors in 2013.
In this case, U.S. Bancorp was accused by regulators of failing to maintain protections against money launderers. The bank didn’t evaluate its customers properly and kept its compliance staff too small, according to the OCC settlement. It capped the number of reports employees were expected to file when they spotted suspicious transactions. That resulted in a lot of potentially illicit activity getting through unnoticed, according to the government.
U.S. Bancorp also let customers and non-customers alike execute Western Union wire transfers for hundreds of millions of dollars without significant monitoring — even as a significant portion of them went to designated high-risk destinations such as Nigeria, Pakistan, Afghanistan and Lebanon, according to court papers.
When an anti-money laundering executive raised concerns about transaction monitoring with the bank’s chief compliance officer in December 2012, he was chastised for documenting the issue an an email.
The penalties are among the most severe faced by a U.S. bank. Previously, Citigroup Inc. had to pay more than $300 million in a series of settlements with the Justice Department and regulators to resolve an investigation into its former Banamex USA unit and wider problems with Citigroup’s compliance with money-laundering laws. Just as in the U.S. Bancorp probe, the OCC initially found fault with the company years earlier and followed up with a fine last month when the agency found Citigroup didn’t do enough to fix its money-laundering safeguards.
The biggest case was a $1.9 billion deal with HSBC Holdings Plc in 2012 to resolve widespread failures that allowed billions in drug-cartel money to be laundered, in addition to the violation of multiple economic sanctions in several other countries.
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