On June 15, multiple federal agencies issued a $4.5 million penalty against a local bank that admitted to failing to maintain an effective anti-money laundering program. The coordinated enforcement action by multiple agencies and substantial monetary penalty illustrates the significant risks for anti-money laundering compliance for local financial institutions. The coordinated action was announced by the U.S. Attorney’s Office for the Southern District of West Virginia, the Federal Deposit Insurance Corporation (FDIC), and the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN).
The Bank of Mingo of Williamson, West Virginia (Mingo), accepted the penalty as part of a deferred prosecution agreement, in which it acknowledged that one of its branch managers failed to file currency transaction reports (CTRs) for $9 million in structured transactions for one corporate customer. According to a stipulation of facts filed by the U.S. Attorney’s Office and Mingo, the structured transactions stemmed from accounts held by two business partners who operated companies that provided contract labor to coal operations in southern West Virginia. Notably, Mingo had an anti-money laundering (AML) program in place and required its employees to receive annual training on the program. Moreover, this program included a “Know Your Customer” program that required bank employees to gather information about new employees or accounts, and included specific rules for aggregating multiple withdrawals from a single account.
The Bank Secrecy Act (BSA) requires U.S. financial institutions to file reports of cash transactions exceeding a daily aggregate amount of $10,000. The Mingo branch manager in 2005 conducted a “Know Your Customer” investigation to learn the business partners’ purpose in routinely withdrawing amounts of less than $10,000. The Mingo branch manager accepted the partners’ rationale that multiple withdrawals were needed for their contract labor businesses in different geographic areas.
The partners later formed another contracting company, Aracoma Contracting, LLC (Aracoma), under the name of a nominee owner. Aracoma transmitted requests for advances from a line of credit it held with Mingo. Mingo paid out these advances, in pre-counted cash, directly to identified Aracoma employees. In a cash log, the teller entered the name of the employee – not of Aracoma itself – when withdrawals were made. As a result, Mingo did not aggregate the transactions and did not file CTRs. According to FinCEN, the partners conducted more than $9 million in structured transactions through the bank.
The structured transactions continued even after an FDIC audit raised concerns about Aracoma’s transactions. Following the FDIC audit, Mingo’s BSA officer circulated a memo September 10, 2008, stating that Aracoma should “have cashier’s checks issued and then deposited into a checking owned by them at [Mingo],” and that Aracoma should then “write checks on this account to get the cash out of [Mingo] for payroll purposes.” According to the parties’ stipulation of facts, Mingo acknowledges that “it was on notice no later than September 10, 2008” that Aracoma’s withdrawals were against Mingo policy and should not have been allowed.
Mingo’s penalty includes a civil forfeiture and civil monetary penalties. The agreement noted that Mingo had appointed a new BSA officer, reviewed its accounts for BSA compliance, and established a new BSA training program.
The branch manager who failed to file the CTRs also previously served as the mayor of Williamson, West Virginia, and pleaded guilty in 2014 to conspiracy to structure currency transactions.
This action serves as a reminder that financial institutions, regardless of size or location, remain under intense scrutiny. It also serves as a reminder of the importance of regularly testing an institution’s AML program and implementing remedial measures when lapses are identified.