Dive Brief:

• Weir, Kansas-based CBW Bank is contesting charges and a $20.4 million penalty imposed by the Federal Deposit Insurance Corp. stemming from alleged anti-money laundering failures.
• The enforcement action, in which the FDIC said the bank “recklessly engaged in unsafe or unsound practices” and benefited financially from doing so, was brought against the $90 million-asset lender in November and made public Dec. 27. The bank lacked an adequate customer due diligence program and sufficient controls to detect suspicious activity when handling international money transfers for foreign customers, the agency said.
• The bank then filed a complaint Nov. 19 in the U.S. District Court for the District of Kansas, blasting the FDIC for assessing a fine “for years-old conduct that occurred in the Bank’s long-abandoned correspondent banking and money services businesses.” CBW contends it took “swift action” to address the agency’s concerns, including shuttering those businesses in 2020. 

Dive Insight:

Between December 2018 and August 2020, CBW failed to maintain a sufficient anti-money laundering/counterterrorism financing compliance program, the FDIC said in its enforcement action. 

That resulted in multiple incidents in which the bank “repeatedly” violated Bank Secrecy Act regulations. Those violations “were part of a pattern of misconduct,” and CBW “received financial gain or other benefit,” the FDIC said.

The lender provides banking services to its rural, retail customer base but also ran a multibillion-dollar international money transfer business from its Weir headquarters and a Topeka, Kansas-based operations center during the review period. Fee-based correspondent banking services for foreign banks generated most of the bank’s earnings, the FDIC noted.

CBW, between 2018 and 2020, provided international banking services to about 30 foreign banks, six money services businesses and several other financial services businesses in Central and South America, Europe, Africa and the Middle East, the FDIC said. In 2018 alone, the bank processed about $27 billion in wire transactions for foreign banks.

CBW failed to create or maintain an AML/CFT compliance program that matched the higher risks presented by its business operations, the agency alleged. The bank lacked an internal controls system designed to ensure compliance with the BSA, didn’t conduct independent testing of the compliance program, didn’t have “an adequately trained and empowered” BSA officer and didn’t provide BSA training for relevant employees, the FDIC said.

Additionally, the lender failed to file hundreds of suspicious activity reports, didn’t have an appropriate risk-based customer due diligence process and failed to maintain an adequate due diligence program for foreign bank correspondent accounts, the FDIC said. Those failures enabled the bank to earn millions of dollars in fee income it otherwise wouldn’t have, the agency said.

The FDIC informed the bank of deficiencies in a 2017 report, it said, and CBW has failed to correct many of those, which the agency said it also documented in 2022 and 2023. The agency pointed to the bank’s reliance on an AML/CFT monitoring software program to detect suspicious activity but said CBW “made a number of critical errors” in using the software that “undermined the integrity of the review process.” 

The FDIC pointed to U.S. dollar repatriation services the bank provided, “including millions of dollars in bulk cash shipments from Mexico for five Mexico-chartered banks and [a money services business].”

“Bulk cash shipments from Mexico are a major concern for U.S. law enforcement because they are often associated with money laundering in connection with drug trafficking activities,” the agency said.

With international wire services, the monitoring program failed, in many cases, to identify suspicious activity, or in some cases when it did, the bank didn’t act, the FDIC said. 

CBW’s BSA officer failed to independently review certain transactions and wasn’t aware they had occurred, the FDIC said. The bank’s BSA officer from 2018 to 2020 had no banking or BSA officer experience, admitted to the FDIC he wasn’t qualified for the role when hired, and said he counted on a bank executive responsible for managing customer relationships to understand CBW’s business lines, the order said. 

Further, CBW’s customer due diligence failed to identify that a person considered an “owner” of a certain foreign bank was added to an Office of Foreign Assets Control global terrorist list in 2015, the FDIC said.  

The agency issued a $20,448,000 civil money penalty against the single-branch bank.  

The FDIC seeks to impose a fine “it is aware will consume substantial amounts of the Bank’s capital and harm its reputation,” the bank said in its complaint. 

“The penalty sought by the FDIC is unreasonable and unprecedented for a bank of this size, complexity, and supervisory history,” the complaint indicated.

CBW aims to request a hearing with the FDIC, according to the complaint. The bank couldn’t immediately be reached for comment. 

The FDIC declined to comment. The agency filed a motion to dismiss Dec. 20, calling CBW’s lawsuit “an improper collateral attack” on the statutory process to which the bank is entitled.