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AML/CFT

How to avoid costly BSA enforcement actions: Proactive steps for bank compliance

Terri Luttrell, CAMS-Audit, CFCS
November 15, 2024
Read Time: 0 min

Be proactive with your AML/CFT program to prevent BSA enforcement actions   

As regulatory scrutiny intensifies, financial institutions face more frequent Bank Secrecy Act (BSA) enforcement actions from supervisory agencies. These actions can result in costly civil penalties and reputational damage, so banks and credit unions should take proactive steps to ensure their BSA compliance programs are robust and effective.

Key topics covered in this post: 

In a recent high-profile case, a major bank faced significant civil and criminal consequences for violating the BSA. FinCEN, the OCC, the DOJ, and the Federal Reserve hit the financial giant with over $3 billion in fines and forfeitures for violations in all Bank Secrecy Act pillars. These violations represent systemic failures in their AML/CFT program, causing material harm to the U.S. financial system.

The violations were significant and included:

  • Failure to ensure sufficient staffing and resources for the BSA Officer
  • Disincentivized the BSA Officer to incur costs needed to ensure compliance
  • The BSA Officer lacked direct authority over an AML Technology Head who oversaw the transaction monitoring system and the head of AML operations
  • AML headcount decreased in size despite monitoring alerts continuing to rise, resulting in backlogged alerts and cases
  • ​​Insufficient transaction monitoring programs in banks, including failure to monitor insider activity and several transaction types such as ACH, certain funds transfers, P2P channels, checks, and specific monetary instruments
  • Relied on contractors that delivered “sub-par, shoddy, and incompetent work”
  • ​​​Inadequate high-risk customer monitoring
  • Scenario tuning, such as above-the-line/below-the-line testing, was inadequate and focused on SAR conversion rates and changing scenario thresholds to minimize false positives
  • BSA training was not tailored to specific risks
  • Inadequate processes for identifying and adequately risk rating customers due to inadequate staffing and software

​This enforcement action underscores the growing regulatory scrutiny and serves as a warning to financial institutions that BSA enforcement actions are not just a risk for larger banks—they can affect institutions of all sizes. As regulatory scrutiny increases for financial institutions, enforcement actions resulting in civil money penalties are growing in size and frequency. Although the above example is a large bank, similar enforcement actions are being handed down to community banks. When reading regulatory enforcement actions, consider the criticisms a checklist for what not to do in your AML/CFT program.

Key strategies to prevent BSA enforcement actions

To prevent BSA enforcement actions, banks must prioritize proactive compliance measures. Here are some essential steps:

  1. Strengthen internal controls: Effective internal controls are the backbone of a sound AML/CFT compliance program. Banks should regularly update their risk profiles, audit their processes, and ensure compliance with FFIEC guidelines.
  2. Invest in employee training: BSA/AML compliance is a bank-wide responsibility. Annual training sessions should be mandatory for all employees to understand the red flags of suspicious activity and their reporting responsibilities. This reduces the risk of overlooked compliance issues that lead to BSA enforcement actions.
  3. Ensure management and board of director oversight: A strong compliance culture starts at the top. Senior management and the board must actively participate in setting the tone for compliance and fully understand the risks and penalties associated with BSA criticisms.
  4. Use advanced monitoring solutions: Effective monitoring systems help identify potential violations before they become problems. An integrated bank Anti Money Laundering software system for tracking alerts and reports minimizes the risk of human error and enhances the bank’s ability to detect suspicious activity early.

Don't wait for an enforcement action: Be proactive

Waiting for a BSA enforcement action is not a strategy. The financial penalties can be severe, resulting in reputational damage that may take years to repair. By being proactive, banks can safeguard themselves from regulatory penalties and ensure their operations align with evolving compliance standards.

Proactively defend your program by focusing on its safety and soundness through strong internal controls. The FFIEC states financial institutions' internal controls should:

  • Incorporate the AML/CFT risk assessment and the identification of ML/TF and other illicit financial activity risks, along with any changes in those risks.
  • Provide for program continuity despite operations, management, employee composition, or structure changes.
  • Facilitate oversight of information technology sources, systems, and processes that support AML/CFT compliance.
  • Provide timely updates in response to changes in regulations.
  • Incorporate dual controls and the segregation of duties to the extent possible.
  • Include mechanisms to identify and inform the board of directors, or a committee thereof, and senior management of AML/CFT compliance initiatives, identified compliance deficiencies and corrective action taken, and notify the board of directors of SARs filed.
  • Identify and establish specific AML/CFT compliance responsibilities for bank personnel and oversee their execution.

Your AML/CFT program must have robust monitoring and control systems to detect issues before they are discovered in examinations. Some of these issues include:

  • Inadequate components of your written AML/CFT policies and procedures
  • Missing or incorrect portions of SAR and CTR forms
  • Inadequate investigation efforts on alerts
  • The need for a more streamlined software solution rather than manually monitoring all aspects of the BSA program
  • A lack of quality control function
  • Not filing SAR or CTR reports promptly 

By the time regulators visit, it’s too late to make these adjustments, so be sure to check for any deficiencies before an audit or exam. 

Another critical aspect of avoiding severe penalties is building a strong culture of compliance for banks and credit unions is that your entire staff, from top to bottom, buys into. Your staff should undergo AML/CFT training annually to support your BSA efforts. Additionally, the bank board of directors must set the tone for your AML/CFT program. If they are active participants and genuinely know the potential penalties and liabilities they face with a weakened program, they will advocate for advancing and strengthening it.

 

Abrigo Advisory: A helping hand

Abrigo’s banking Advisory Services team can help establish a culture of compliance by hosting in-person or remote training for your staff. Our experienced advisors lead extensive BSA training for all departments including teller groups, lending staff, and the board of directors.

As former bankers and BSA Officers, Abrigo advisors know AML/CFT professionals are frequently asked to do more with less, and bolstering programs to prevent BSA enforcement actions is no easy task. To help lighten the load, Abrigo experts can assess your AML/CFT program and help address any issues, giving you renewed confidence before your next exam. We provide various services, including BSA Exam Preparation, Enforcement Action Resolution, Suspicious Activity Monitoring, temporary AML/CFT Officer placement, and more. We also offer custom projects, so if you have an idea or aren’t sure where to start, contact our bank secrecy act consulting team to complete a customer scope. While we’re proud of the software solutions we provide, our end goal is to see our customers succeed in fighting financial crimes.

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About the Author

Terri Luttrell, CAMS-Audit, CFCS

Compliance and Engagement Director
Terri Luttrell is a seasoned AML professional and former director and AML/OFAC officer with over 20 years in the banking industry, working both in medium and large community and commercial banks ranging from $2 billion to $330 billion in asset size.

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About Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

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