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NAFCU's quarterly BSA Blast e-newsletter, released to members yesterday, examines Financial Crimes Enforcement Network action against Merchants Bank of California for numerous Bank Secrecy Act violations in its work with money service businesses. The violations netted Merchants $7 million in penalties.

Merchants is a community bank with one location in Carson, Calif. As of last Sept. 30, it had more than $64 million in total assets and 46 employees.

The current BSA Blast, in an article by NAFCU Regulatory Paralegal Shari Pogach, cites FinCEN's finding that Merchants "willfully violated" BSA program and reporting requirements by failing to do the following:

1. establish and implement an adequate anti-money laundering (AML) program;
2. conduct the required due diligence on its foreign correspondent accounts; and
3. detect and report suspicious activity."

"Billions of dollars in transactions, many conducted on behalf of money services businesses (MSBs) that were owned or managed by bank insiders, flowed through the U.S. financial system without appropriate monitoring for suspicious activity," Pogach notes.

FinCEN fined the bank $7 million. The Office of the Comptroller of the Currency assessed a $1 million civil money penalty against Merchants for violations of previous consent orders that it remedy defects in its BSA compliance program as part of the FinCEN assessment.

Pogach detailed the problems with the bank's failure to establish and implement an adequate AML program, including poor to no internal controls, lack of due diligence for high-risk MSB customers and no risk management of remote deposit capture services. At various times, the bank did not have a designated BSA compliance officer and the staff lacked appropriate training, she noted.

This issue of the BSA Blast also includes a forum with questions and answers about credit unions' BSA audits and the customer identification program.

A BSA quiz is also included in this quarter's e-newsletter, which focuses on Suspicious Activity Reports and red flags for suspicious activity.