Criminal Actions Brought Against Rabobank and US Bank
Kerry Zinn identifies stipulations to evaluating anti-money laundering programs and the importance of cooperating with regulators.
In early 2018, the Department of Justice (“DOJ”) brought two criminal actions relating to Anti-Money Laundering (“AML”) program deficiencies. This article examines the criminal actions brought against Rabobank National Association (“Rabobank”) and US Bank National Association and US Bancorp (collectively “US Bank”) by the DOJ relating to their AML programs and the reasons why the violations rose to the level of criminal charges.
In February 2018, Rabobank settled two matters associated with its AML program. Rabobank entered into a Consent Order with the Office of the Comptroller of the Currency (“OCC”) and was fined $50 million for its AML program deficiencies. Rabobank also pled guilty to one count of conspiring to defraud the federal government and corruptly obstruct an examination of a financial institution and agreed to forfeit approximately $368 million to the government. The OCC’s fine was credited toward the forfeiture amount.
Rabobank’s AML program had multiple deficiencies. Rabobank had cash intensive customers on the Mexican border and knew that their funds were likely related to narcotics trafficking and organized crime. Rabobank did not file suspicious activity reports (“SARs”) relating to those customers. Rabobank devoted insufficient resources to its surveillance and investigations program and the personnel were not qualified. Rabobank put policies in place which precluded and suppressed surveillance alert reviews . In particular, Rabobank implemented a “verified list” policy that allowed employees to disregard alerts relating to customers on its “verified list.” As a result of precluding and/or suppressing alerts, Rabobank failed to review and report potentially suspicious activity.
Although Rabobank had material weaknesses in its AML program, they were not the basis of the criminal charge and guilty plea. Rabobank was criminally prosecuted because three of its senior executives, including one of its AML officers, conspired to withhold a consultant’s report which was critical of Rabobank’s AML program. The senior executives made misleading or false statements about the report’s existence and contents. The OCC requested a copy of the report and was told that the consultant did not complete an assessment of the AML program nor leave any documentation. When pressed for a copy of the report, Rabobank ultimately turned it over but falsely stated to the OCC that the report had only been sent to the Chief AML officer and legal counsel.
The DOJ also brought criminal charges against US Bank consisting of two felony charges for willfully failing to have an adequate AML program and willfully failing to file SARs. US Bank agreed to enter into a Deferred Prosecution Agreement (“DPA”) and forfeit $528 million to the government. The OCC and the Federal Reserve Board of Governors brought contemporaneous enforcement actions and fined US Bank $75 million and $15 million respectively. The Financial Crimes Enforcement Network (“FinCen”) also brought an enforcement action which included additional charges for failing to file accurate Currency Transaction Reports and imposed a fine of $180 million but deemed it satisfied if US Bank paid $70 million and the forfeiture amount to DOJ. In total, US Bank paid $613 million for its AML program violations.
US Bank admitted that from 2009 to 2014 it willfully failed to establish implement and maintain an adequate AML Program. US Bank capped the number of alerts generated by its transaction monitoring systems, basing the number of alerts on staffing levels and resources rather than setting thresholds for alerts that corresponded with a transaction’s level of risk. US Bank knew that it was missing suspicious activity as a result of the alert caps. US Bank performed below the line testing and found that there was suspicious activity relating to 25 percent to 80 percent of tested transactions. Instead of taking action to address the inadequacies of its surveillance program, US Bank simply stopped the below the line testing.
US Bank permitted customers and non-customers to transmit money via Western Union from its branch offices. The Western Union transactions by non-customers were not monitored by US Bank. US Bank also failed to investigate referrals from its branch office employees relating to non-customer Western Union transactions.
US Bank failed to file SARs relating to a longstanding customer who ran a payday loan scheme. Bank employees who serviced the accounts of the customer disregarded numerous red flags indicating that the customer was concealing his ownership of the accounts. After news organizations published negative reports about the customer’s history and questionable business practices, US Bank closed certain accounts of the customer but left others open and permitted the customer to open new accounts. The customer was ultimately sued by the Federal Trade Commission (“FTC”). US Bank did not file any SARs relating to the red flags before or after the FTC lawsuit. The first time that US Bank filed a SAR was when it received DOJ subpoenas relating to that customer’s accounts.
US Bank’s employees deliberately concealed certain information from the OCC. An OCC examiner repeatedly warned US Bank that it was improper to manage the monitoring program based on the size of staff and resources. As a result, US Bank senior management, including the Chief Compliance Officer, deliberately concealed information relating to the alert cap policy that was in place.
There are some common themes in the Rabobank and US Bank criminal actions. In both cases, the AML program violations were willful and/or reckless. For example, Rabobank’s and US Bank’s senior management knew that their AML surveillance teams lacked the resources to effectively discharge their responsibilities. Instead of allocating additional resources, Rabobank and US Bank put measures in place to deliberatively suppress or limit the number of alerts that were reviewed by their surveillance departments. Both Rabobank and US Bank knew that they were not detecting or reviewing potentially suspicious transactions as a result of suppressing alerts.
The Rabobank and U.S. Bank cases should send a clear message to financial institutions that the federal government is going to continue to scrutinize AML programs and will bring criminal charges when deficiencies are the result of willful or reckless conduct. In particular, financial institutions should be on notice that the government may bring criminal charges when there is a failure to adequately fund an AML program which results in material deficiencies. Financial institutions should, therefore, review their AML program periodically to ensure that it has sufficient funding to operate effectively.
The criminal actions against Rabobank and US Bank also serve as a stark reminder of the importance of cooperating with regulators. Rabobank’s and US Bank’s attempts to conceal their AML program violations resulted in more severe penalties and in Rabobank’s case, a guilty plea and criminal conviction. Financial institutions should ensure that personnel at all levels of the organization understand the importance of being candid and transparent with regulators relating to AML program deficiencies and that failure to do so could result in criminal charges and severe monetary penalties.
 An employee named George Martin, who was the head of AML investigations, entered into a Deferred Prosecution Agreement with the DOJ in 2017 for aiding and abetting Rabobank’s failure to maintain an adequate AML program. Mr. Martin agreed to cooperate with the DOJ and perform 50 hours of community service. United States v. Martin, No. 17-cr-4232 (S.D. Cal. Dec. 14, 2017.
 https://www.occ.gov/news-issuances/news-releases/2018/nr-occ-2018-15.html; https://www.federalreserve.gov/newsevents/pressreleases/enforcement20180215a.htm
 US Bank was not charged with conspiring to defraud the federal government and obstruct an examination. In all likelihood, US Bank was able to persuade the DOJ to drop that charge since it was agreeing to more serious felony charges associated with its AML program.