The California-based affiliate of Dutch lender Rabobank pleaded guilty to obstruction Wednesday, five years after bank executives sought to conceal a damaging third-party report from the U.S. Office of the Comptroller of the Currency.
In a 45-page settlement, federal prosecutors outlined how executives at the subsidiary ignored warning signs that “untraceable cash” was flowing through branches near the U.S. border with Mexico, suppressed subsequent investigations by compliance staff, fired another executive and demoted two managers who raised concerns in early 2013.
By that year Rabobank had opened at least 100 branches in California and become “heavily dependent” on cash from Mexico, prosecutors wrote. The branch in Calexico, located only two blocks from the border, represented the lender’s highest revenue performer in the southernmost portion of California during the timeframe covered by the plea agreement.
The subsidiary, Rabobank National Association, or RNA, must pay $368 million to the U.S. Justice Department to settle the criminal charge. The sum matches the amount of suspicious funds estimated to have flowed through the lender’s branches near Mexico from 2009 to 2012 and covers a $50 million penalty levied by the OCC.
The Justice Department’s finding that Rabobank sought to hide its violations from the federal regulator is unusual, and the severity of the claims suggest more enforcement actions could follow, Jerry Robinette, a former special agent in charge for the Department of Homeland Security in San Antonio told ACAMS moneylaundering.com.
According to Dan Stipano, former deputy chief counsel for the OCC, individuals described in the plea agreement may be under investigation and subject to enforcement.
“I would not be surprised to see forthcoming pleas or indictments,” Stipano, now an attorney with Buckley Sandler in Washington, D.C. said.
In 2010, shortly after Mexican regulations capped deposits of U.S. dollars into Mexican banks to staunch suspected attempts by cartels to launder profits, new accounts at Rabobank’s branches in Calexico and Tecate, California jumped by 25 percent and 22 percent respectively.
“[RNA’s] records suggest that this growth occurred, in part, because [RNA] took on cash deposits it understood Mexican banks no longer could accept,” prosecutors wrote.
From 2009 to 2012, Rabobank’s automated monitoring system flagged “hundreds of millions of dollars in untraceable cash, sourced from Mexico and elsewhere” and processed by those two branches. The alerts prompted initial inquiries from compliance officers that were largely ignored by managers, prosecutors claimed.
At some point in 2011, Rabobank officials had tasked just three analysts to review around 2,300 alerts each month. Two other individuals conducted more than 100 investigations monthly.
Many of the largest and most well-established institutions around that time began closing down branches along the Southwest border to minimize their exposure to legal and regulatory penalties, leaving smaller institutions to absorb high-risk business.
“[Rabobank] does not dispute that these transactions involved funds that were the proceeds of, or traceable to, unlawful conduct such as international narcotics trafficking, organized crime, and money laundering,” prosecutors wrote.
Attempts to launder funds through Rabobank customer accounts included trade-based schemes, black market peso exchange transactions, bulk-cash smuggling and structuring of deposits, prosecutors wrote.
The individual Rabobank appointed in 2007 to lead monitoring and investigations in the region despite having no anti-money laundering experience, George Martin, pleaded guilty in December to helping cover up suspected illicit financial activity and agreed to cooperate with prosecutors.
By the time Rabobank fired Martin in 2012, the lender had added at least 1,000 customers to a “verified list” that dramatically reduced the likelihood they would draw enhanced internal scrutiny for high-risk transactions. Martin and another manager also imposed daily quotas for clearing alerts that prevented any meaningful investigation of flagged transfers.
Rabobank hired a consulting firm later that year that found numerous, “obvious deficiencies” with the lender’s AML program, including unqualified staff and failures to manage high-risk customers, prosecutors wrote.
The bank’s executive managers agreed to withhold the report from the OCC after the regulator found potential AML violations and requested a copy in February 2013.
That month, a senior Rabobank official identified only as “Executive C” told another high-ranking official that “Executive D” should be excluded from a meeting with the OCC to prevent her from contradicting other senior officials, according to the plea agreement.
Executive C ultimately did exclude Executive D from the meeting, then placed her on leave and finally fired her after she persisted in raising concerns, prosecutors wrote.
In March, another executive, “Executive A,” who prosecutors identified as a former OCC examiner, falsely claimed in an email to the regulator that the third-party consulting firm never completed its assessment.
As discussions with regulators progressed, the same official emailed the OCC an innocuous document outlining generic steps the bank would take to upgrade its compliance program. Finally, in April, the executive sent the highly critical report, but not without falsely claiming it had never reached other senior leaders.
Executive A then demoted another employee, “Manager B,” after she disclosed her concerns with Rabobank’s compliance program to the OCC.
By agreeing to plead guilty, Rabobank avoided a conviction that may have resulted in the revocation of its operating license, said Stipano, the former OCC attorney.
“It’s a criminal violation that is not really cited that often, and usually it has to be a pretty egregious example,” Stipano said of the exam obstruction charge.
|Topics :||Anti-money laundering|
|Source:||U.S.: Department of Justice , U.S.: OCC|
|Document Date:||February 7, 2018|