Bank Secrecy Act Compliance: Lessons from the Lone Star Bank AML Violation

Lone Star National Bank will pay $2 million in fines for failing to follow Bank Secrecy Act AML & KYC due diligence requirements.

Earlier this month, Lone Star National Bank in Texas was fined $2 million for failure to meet Bank Secrecy Act anti-money laundering requirements from 2010-2014. The U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) determined that Lone Star willfully violated Bank Secrecy Act requirements after taking on a Mexican bank as a customer. Over two years, the Mexican bank moved hundreds of millions of U.S. dollars in suspicious bulk cash shipments through the U.S. financial system.

FinCEN found this was possible because Lone Star failed to conduct appropriate due diligence and follow up on suspicious activity. Adhering to Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements like those established in the Bank Secrecy Act demand a lot of effort, time and money by today’s banks. Failure to comply, however, also brings its own consequences. The situation at Lone Star National Bank offers a clear picture into the need for banks to have strong KYC and AML compliance programs to avoid taking on unnecessary risk — or to ensure they have the know-how to recognize and monitor potential high-risk accounts.

Solutions for Bank Secrecy Act Anti-Money Laundering Compliance

Lone Star National Bank was fined for three reasons.

  1. failure to establish and implement an adequate AML compliance program
  2. failure to conduct required due diligence on a foreign correspondent account; and
  3. failure to report suspicious activity.

Here’s a look at solutions for meeting each of these Bank Secrecy Act requirements.

Establish a robust AML compliance program.

The foundational step for Bank Secrecy Act compliance is to put into place a complete AML compliance program. Banks need a trained internal team to monitor risk and complete thorough assessments before taking on a new partner.

But tracking all the steps in maintaining AML compliance throughout a customer life cycle can be complex and time consuming. To stay on top of changing regulations and guidelines, many banks employ SaaS technology to streamline their AML process and maintain compliance.

Such platforms help banks of any size meet AML requirements by providing ongoing compliance testing and automatic monitoring of risk. These systems give banks greater operational oversight to make sure no requirements are overlooked, as well as speed up customer assessments. To reduce financial, reputational, legal and regulatory risk, technology solutions have emerged as a key component of a robust AML compliance program.

Maintain due diligence assessments for monitoring potential risk.

Before taking on a new account, banks must assess for potential risks, or be held accountable for them later. For Lone Star, the information to complete effective due diligence was available, but they failed to ask the right questions to manage their risk in a foreign banking relationship.

For example, although it was publicly reported, Lone Star was unaware that the Mexican bank had settled fraud charges brought against it by the U.S. Securities and Exchange Commission. Such knowledge would have been an alert that the Mexican bank was a high-risk partner, and needed to be closely monitored for suspicious activity in its transactions.

In this area, technology solutions are giving banks greater opportunities to investigate potential customers and demonstrate compliance from the start of a relationship. KYC & AML data solutions platforms can search across all data sources required by regulations and remove manual errors and reporting inconsistencies to speed up and improve customer onboarding. Ongoing due diligence assessments throughout the customer lifecycle are essential to lowering risk.

Implement transaction monitoring and reporting.

The Bank Secrecy Act requires banks to report any transactions a bank “knows, suspects, or has reason to suspect” are suspicious. This implies banks have a system in place to monitor and flag transactions. FinCEN found that Lone Star failed to file 173 suspicious activity reports mandated under the Bank Secrecy Act.

To track suspicious transactions and uncover any high-risk changes to a previously onboarded entity’s profile, banks need solutions for constant surveillance. Here, KYC & AML technology lend a hand by checking clients for any changes in their risk profile and alerting the bank so they can unmask new risks pointing to the potential for fraudulent activity.

How Alacra Compliance Enterprise Addresses BSA Compliance Requirements

The Alacra Compliance Enterprise (ACE) workflow is an Opus solution that allows global banks to streamline KYC and AML compliance. ACE inherently follows Bank Secrecy Act guidelines, making it easier for banks to comply with AML requirements and avoid risk that leads to investigations and fines. When discussing the BSA violations at Lone Star National Bank, FinCEN stated: “Smaller banks, just like the bigger ones, need to fully understand and follow the 312 due diligence requirements if they open up accounts for foreign banks. The risks can indeed be managed, but not if they are ignored.”

The technology behind ACE helps banks do just that. ACE uses automated workflows, accelerates customer onboarding and standardizes KYC investigations, searches across required data sources, and enables managerial oversight — all while reducing costs. As AML and KYC requirements become more stringent, Opus plans to continue to deliver technology solutions that ensure banks are compliant with acts like the Bank Secrecy Act and ensuing amendments.

Technology that provides financial institutions with compliance risk and screening intelligence in one place will make KYC investigations smoother and allow for simplified monitoring. As a result, banks can defend against risk, like that missed by Lone Star, and avoid the repercussions of non-compliance.

For more on Alacra Compliance Enterprise, download the datasheet to learn how it helps banks globally meet KYC and AML compliance requirements.

Request a free Alacra Compliance Enterprise demo today.

Kelvin Dickenson
Follow Kelvin on Twitter, @kelvindickenson