International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Tuesday, September 2, 2014

BPI Shuts Down its MSB Operation After Money Laundering Investigation

FINCENThe Financial Crimes Enforcement Network (FinCEN) today imposed a civil money penalty of $125,000 against BPI, Inc., a New Jersey money services business (MSB), for willful and repeated violations of the Bank Secrecy Act (BSA).  In November 2013, BPI’s parent, Banco BPI, S.A., received approval from the Board of Governors of the Federal Reserve System to establish representative offices in New Jersey and Massachusetts and BPI ceased operations as an MSB in March 2014.

BPI's Money Laundering Violations (excerted from FINCEN Assessment)

1. Internal Controls
BPI’s policies, procedures, and internal controls (1) were inadequate to monitor, detect and
report suspicious activities; (2) failed to obtain and retain required identification information for
fund transfers of $3,000 or more; and (3) had known deficiencies that constituted repeated BSA

First, with respect to suspicious activities, BPI’s AML program manual erroneously
stated “[w]hile nonbank financial institutions are not required to report suspicious transactions, as a matter of policy, BPI reports suspicious transactions voluntarily using the SAR applicable to banks and other depository institutions . . . .” Although this provision of its AML manual advised that the company would file suspicious activity reports or “SARs” “as a matter of policy,” the statement minimized the legal requirement by essentially advising its employees – improperly – that this was not a legal obligation. Moreover, notwithstanding BPI’s policy that it would “voluntarily” file suspicious activities reports, it failed to file even a single SAR prior to the 2011 BSA examination conducted by IRS SB/SE.

Significantly, the 2011 IRS SB/SE examination team identified more than a dozen suspicious transactions or pattern of transactions occurring over a six-month period that warranted the filing of SARs.

Second, BPI lacked adequate policies, procedures, and internal controls to obtain required
identifying information for transactions conducted on behalf of a party other than the person
conducting the transaction. BPI’s computer system was not able to capture information on
individuals conducting transactions on behalf of others. 31 C.F.R. § 1010.410(e)(2)(i). As a result,
BPI compromised its ability to detect suspicious transactions, and those individuals actually
conducting or otherwise responsible for those transactions. BPI also failed to adequately update
expired identification documents, which resulted in recordkeeping violations for funds transfers of
$3,000 or more. 31 C.F.R. § 1010.410(e).

Finally, and notably, BPI failed to adequately address a number of concerns that had been
previously raised by the IRS SB/SE examiners in 2006, as well as by NJDBI, which found repeated
AML program violations in 2005 and 2006. IRS SB/SE and NJDBI previously cited BPI for failing
to maintain an adequate AML program, including for deficiencies in internal controls, independent
testing, and training. These repeated violations, discovered in 2011, several years after federal and
state authorities had issued warnings and corrective actions to BPI, highlight BPI’s failure to
maintain an effective AML program.

2. Training
BPI failed to provide adequate training to its employees to identify and report suspicious activity and to comply with the funds transfer record keeping requirements of the BSA. This deficient training resulted in BPI’s failure to identify and report suspicious transactions or patterns of transactions identified during the 2011 BSA examination. Similarly, BPI employees allowed customers to conduct transactions without verifying and retaining required identification information, and also allowed customers to conduct money transfers by using expired identification documents, including identification documents that were more than ten years past their expiration.

As with the internal controls deficiencies discussed above, IRS SB/SE and NJDBI had previously noted AML training to BPI as an area of weakness in prior examinations conducted. Thus, BPI was aware of its deficient training program as early as 2005, yet failed to take adequate action to correct the noted deficiencies.

3. Independent Testing
BPI failed to conduct an independent test of its AML program for a period of more than three years. BPI arranged for an independent review in November 2007. BPI did not arrange for another such independent test until November 2011, and did so only after its initial meeting with IRS-SB/SE commencing the 2011 BSA/AML examination. Moreover, BPI failed to conduct independent testing even though its own policies required such testing to be conducted at least annually, and its independent auditor recommended in 2008 that such testing be conducted at least every 18 months. BPI had been cited for failure to provide for an independent review by the NJDBI in 2005 and 2006, and also by the IRS SB/SE in 2006. Thus, as with the other BSA violations discussed above, BPI was on notice of this deficiency in its independent testing.
In summary, BPI willfully and repeatedly violated the BSA/AML program requirements by failing to implement adequate internal controls, failing to adequately train appropriate personnel, and failing to conduct adequate independent review for compliance.

B. Violations of Reporting Requirements
The BSA and its implementing regulations require MSBs to report transactions that the MSB “knows, suspects, or has reason to suspect” are suspicious, if the transaction is conducted or attempted by, at, or through the MSB, and the transaction involves or aggregates to at least $2,000 in funds or other assets. 31 C.F.R. § 1022.320(a)(2).  

A transaction is “suspicious” if the transaction:

(a) involves funds derived from illegal activity;

(b) is intended or conducted in order to hide or disguise funds or assets derived from illegal activity, or to disguise the ownership, nature, source, location, or control of funds or assets derived from illegal activity;

(c) is designed, whether through structuring or other means, to evade any requirement in the BSA or its implementing regulations;

(d) serves no business or apparent lawful purpose, and the MSB knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction; or

(e) involves use of the MSB to facilitate criminal activity. 

The BSA examination identified 25 suspicious transactions, or pattern of transactions, for which BPI failed to file SARs. As described above, prior to the 2011 BSA examination, BPI had never filed a SAR. BPI subsequently agreed with 18 of the 25 suspicious transactions identified and filed SARs.

The BSA/AML Regulation

The BSA and its implementing regulations require MSBs to develop, implement, and maintain an effective written AML program that is reasonably designed to prevent the MSB from being used to facilitate money laundering and the financing of terrorist activities. 31 U.S.C. §§5318(a)(2) and 5318(h); 31 C.F.R. § 1022.210. BPI was required to implement an AML program that, at a minimum:

(a) incorporates policies, procedures and internal controls reasonably designed to assure ongoing compliance;

(b) designates an individual responsible for assuring day to day compliance with the program and BSA requirements;

(c) provides training for appropriate personnel including training in the detection of suspicious transactions; and

(d) provides for independent review to monitor and maintain an adequate program.

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