CommunityBank of Texas fined $8M over AML failures

The order, announced Thursday, includes a $7 million civil penalty imposed by FinCEN and an additional $1 million fine by the Office of the Comptroller of the Currency (OCC) as a result of its own investigation into similar matters. Both regulators are divisions of the Department of the Treasury.

FinCEN lauded CBOT for the extent of its cooperation in the investigation, including the formation of a special committee of the board of directors to oversee the bank’s response to the probe. As part of the consent order, CBOT admitted to the agency’s determinations in its statement of facts.

CBOT is a wholly owned subsidiary of Houston-based bank holding company CBTX.

The details: From at least 2015 through 2019, CBOT violated the Bank Secrecy Act (BSA) by failing to implement and maintain an effective AML program reasonably designed to guard against money laundering. The bank was also found to have failed to timely file more than a dozen suspicious activity reports (SARs) to FinCEN.

During the relevant period, CBOT had an AML program in place that utilized an automated monitoring system that reviewed transactions and generated alerts of possible suspicious activity based on predetermined criteria. Those alerts were to be sent to an AML analyst to review, and the analyst would forward activity deemed to be suspicious to a SAR committee.

Where the bank failed was in its support of its AML program. During the period, CBOT “retained six to eight BSA staff, including a BSA officer and several BSA analysts, of which three reviewed case alerts on a regular basis and provided quality control review for one another,” according to FinCEN. The three analysts on case alerts reviewed an average of 100 per day and were often stretched too thin to look at supporting documents as part of their AML efforts.

With CBOT’s AML program understaffed, corners were cut. The bank’s customer due diligence protocols as part of its automated system included documentation staff would not complete as required. At one point, the bank’s BSA officer applied exemptions for certain “well-known” customers in the automated system as a way to reduce the number of case alerts, but these exemptions would, in some cases, be applied to individuals later arrested for or convicted of financial crimes.

CBOT’s overall AML lapses resulted in a failure to file at least 17 SARs, including regarding customers criminally convicted of money laundering, tax evasion, illegal gambling, and other financial crimes.

“CBOT’s violations were not the result of pervasive wrongdoing within the organization, although the failures occurred at multiple levels within the organization,” FinCEN stated. “Principally, the non-compliance was centered within the AML office, which failed to fully respond to the risks inherent in the bank’s customer base. However, the office’s failures were compounded by the bank’s inadequate staffing and oversight of the AML office, either through the BSA Officer, or otherwise.”

As part of CBOT’s remediation efforts, all the bank’s former AML office employees voluntarily resigned and the BSA officer retired. In November 2019, the bank hired a new director of financial crimes and has since increased its AML staffing. CBOT further back-filed the 17 missing SARs.

“Today’s action should serve as a reminder to banks of all sizes that FinCEN and our regulatory partners will work closely together to ensure that banks comply with the Bank Secrecy Act and its implementing regulations in order to combat money laundering and promote national security,” said FinCEN Acting Director Himamauli Das in a press release.

CBOT did not respond to a request for comment.