South Dakota-based Kingdom Trust Co. agreed to pay a $1.5 million fine to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) for anti-money laundering (AML) deficiencies that resulted in violations of the Bank Secrecy Act (BSA).
“Kingdom Trust had virtually no process to identify and report suspicious transactions, resulting in it processing over $4 billion in international wires with essentially no controls,” said FinCEN Acting Director Himamauli Das in a press release Wednesday.
The details: Kingdom Trust, whose primary business offering is the provision of custody services to people with self-directed individual retirement accounts, provided account and payment services to foreign securities and investment firms located in Latin America that had elevated money laundering risks. Some of those transactions had connections to a “trade-based money laundering scheme and multiple securities fraud schemes that were the subject of both criminal and civil actions,” FinCEN said.
From 2016-21, the company had a “severely underdeveloped and ad hoc” process for identifying and reporting potential suspicious activity to FinCEN, according to the agency’s consent order. As a result, Kingdom Trust “willfully failed to timely and accurately report hundreds of suspicious transactions that flowed through Kingdom Trust into the U.S. financial system during the relevant time period,” the order said.
Compliance considerations: Kingdom Trust admitted FinCEN’s findings. The case marks the agency’s first enforcement action against a trust company.
Kingdom Trust failed to hire enough qualified, experienced AML compliance officers to review the thousands of transactions the firm generated daily, FinCEN said.
Before 2018, there was no standalone process at Kingdom Trust to identify and report suspicious activity. Operations staff were tasked with flagging potentially suspicious activity as part of their duties, FinCEN said.
From 2018-20, a compliance employee with no prior AML experience would be tasked with conducting a daily review of all the prior day’s transactions for potentially suspicious activity. In July 2020, Kingdom Trust hired a compliance officer with AML experience, FinCEN said.
Even so, Kingdom Trust’s procedure for identifying suspicious activity was “substantially inadequate,” the order stated.
Daily transaction reports did not contain contextual information about the customer, the source of funds, or the counterparty. Despite having thousands of daily transactions to review, the process was conducted manually and likely failed to identify numerous red flags for suspicious activity, FinCEN said.
Kingdom Trust also failed to address the AML risks posed by its Latin American business lines despite several banks closing accounts held by Kingdom Trust clients and after a BSA/AML audit conducted by a third party cited deficiencies in its processes.
Kingdom Trust did not respond to a request for comment.