WASHINGTON — The government is expected to hit the California money transmitter Sigue Corp. with a record laundering fine that experts said signals more aggressive enforcement of the Bank Secrecy Act.
To date the Justice Department has fined companies for failing to have an effective anti-laundering program, but according to a copy of the settlement obtained by American Banker, the government went further by accusing Sigue of failing to prevent laundering or investigate suspicious activity for which it filed reports.
"They're reinterpreting, redefining what their [BSA] expectations are," said Robert Pargac, Sigue's general counsel. "Under the Justice order, I think they are saying you just don't have to have your AML compliance program, detect suspect activity, and report it to law enforcement, but it goes a step further, and they are requiring institutions to prevent money laundering."
Outsiders, including Peter Djinis, the former executive assistant director for regulatory policy at the Financial Crimes Enforcement Network, backed up Mr. Pargac's interpretation.
"I don't think any institution could meet the standards that are now being imposed by this agreement," Mr. Djinis, now a lawyer in Sarasota, Fla., said in an interview Friday. "Aggressiveness is fine as long as it's fair. This is changing the rules after the activity is covered and I think that is unfair."
The Justice Department "went too far," he said. Under this standard, even a financial institution that filed a suspicious activity report could be held criminally liable "if they have not done an effective job of uncovering the entire money laundering operation."
Ralph Sharpe, a partner at the Washington law firm Venable LLP and a former enforcement official at the Office of Comptroller of the Currency, agreed with that assessment.
"It has implications not just for MSBs, but also banks and anyone else subject to the SAR filing requirements or BSA requirements, and that is it is not enough to file a SAR or a good SAR, but you've got to take the next step to see if there is something there — some pattern, some abuse — and you have to act on it," he said.
The Justice Department declined to comment Friday but it is expected to announce the settlement soon. At nearly $25 million, it would be the department's largest with a money-services business.
Sigue agreed to forfeit $15 million and spend up to $9.7 million to upgrade its anti-laundering program as part of a deferred prosecution agreement.
According to the order, an undercover investigation between November 2003 and March 2005 in 22 states found that Mexican cartels some money-services businesses, including Sigue, to launder funds through the Midwest. Law enforcement agencies used 83 undercover agents to pose as drug traffickers at Sigue, where 59 of its independent agents agreed to structure drug proceeds. (The Justice Department is taking action against 16 of the agents, and Sigue terminated business with them.)
Sigue had an anti-laundering program in place and filed suspicious activity reports on some of the transactions. But in the settlement order, the Justice Department held it liable for not adequately investigating the suspicious activity and for not preventing the broader pattern of laundering.
In all, Sigue identified more than $47 million of structured transactions, but the order said it "failed to take action to prevent from reoccurring."
Mr. Djinis said the government rarely pursues small-sum crimes.
"Virtually all of the undercover transactions were both detected and reported to the government as suspicious," he said. "Now the government comes back and says in this agreement even though they reported this information they didn't contact law enforcement directly… I question whether or not the government would have responded and acted on amounts that small."
Money transmitters tried to downplay the effect the settlement may have on their industry's already strained relationship with banks, but banking industry representatives were less optimistic.
"There is a certain expectation that a bank is going to be overlooking or overseeing what a MSB is doing and certainly a $24 million fine is going to make a bank very weary," said Rob Rowe, a regulatory counsel with the Independent Community Bankers of America.
