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From Banking and Finance Law Daily, June 24, 2015

Bank of the Orient must fix AML compliance deficiencies

By Colleen M. Svelnis, J.D.

Bank of the Orient, a San Francisco bank that operates a foreign branch in Xiamen, China, must fix deficiencies in its Bank Secrecy Act/Anti-Money Laundering compliance program under a Cease and Desist Order issued by the Federal Reserve Board. During an examination, the Federal Reserve Bank of San Francisco and the California Department of Business Oversight identified deficiencies with the bank’s BSA/AML compliance. The bank’s board of directors authorized David Tai, Bank of the Orient’s President and Chief Executive Officer, to enter into the agreement on behalf of the bank.

New compliance plan. Under the order, the board of directors must submit a written plan within 60 days to strengthen board oversight of the bank’s BSA/AML compliance addressing the following:

  • adequate resources for the BSA/AML compliance officer;

  • measures to ensure adherence to compliance policies;

  • steps to improve the management information systems compliance reporting; and

  • actions the board of directors will take to oversee the operations of the branch in China to ensure that management operates this branch in compliance with applicable laws and regulations.

Additionally, the bank must submit an enhanced written BSA/AML compliance program acceptable to the San Francisco Fed including the following:

  • a system of internal controls to ensure compliance;

  • controls designed to ensure compliance with all requirements relating to correspondent accounts for foreign financial institutions;

  • provisions for regulatory independent testing;

  • a risk assessment; and

  • policies that provide for on-going training for all personnel, including targeted training for personnel with compliance-related responsibilities.

Revised due diligence program. With regard to customer due diligence, the bank must submit a written revised program for conducting appropriate levels of customer due diligence by the bank acceptable to the San Francisco Fed including:

  • policies, procedures, and controls to ensure that the bank collects, analyzes, and retains complete and accurate customer information for all account holders;

  • a methodology for assigning risk ratings to account holders;

  • a risk-focused assessment of the bank’s customer base to identify the and determine the appropriate level of enhanced due diligence necessary for those categories of customers that pose a heightened risk;

  • procedures for customers who require enhanced due diligence to determine appropriate documentation to verify the identity and business activities of the customer;

  • policies, procedures, and controls to ensure that foreign correspondent accounts are properly identified and accorded the appropriate due diligence; and

  • procedures to ensure periodic reviews and evaluations are conducted and documented for all account holders.

SARs. The bank must submit a written program “to reasonably ensure the identification and timely, accurate, and complete reporting by the bank of all known or suspected violations of law or suspicious transactions to law enforcement and supervisory authorities, as required by applicable suspicious activity reporting laws and regulations.”

The program must include: (a) a methodology for establishing monitoring rules and processes that take into consideration the bank’s risk profile, products, services, customer base, geographic locations, and foreign correspondent banking activities; (b) policies and procedures that provide for periodic review of the monitoring rules; (c) effective monitoring of customer accounts and transactions, including, but not limited to, transactions conducted through foreign correspondent accounts including retail and commercial transactions; (d) measures to ensure that alert dispositions are supported with adequate rationale and documentation to evidence the research performed and the due diligence that was relied upon to arrive at the analyst’s conclusion; and (e) controls to ensure that transaction monitoring systems and associated automated processes are subject to periodic reviews and timely updates.

Transaction review required. The order also specifies that the bank must hire an independent third party to conduct a transaction review and prepare a report of the findings. The review will cover the time period from July 1, 2014, to Dec. 31, 2014, and will determine whether suspicious activity involving high risk customer and Foreign Branch accounts was properly identified and reported in accordance with applicable suspicious activity reporting regulations.

Companies: Bank of the Orient

MainStory: TopStory BankingOperations BankSecrecyAct EnforcementActions

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