Fincen fines UBS $125M for money laundering recidivism

• Key insight: UBS Financial Services will pay a $125 million penalty for repeated and persistent anti-money laundering offenses.
• Supporting data: The agency says UBSFS failed to monitor more than 61,000 transactions, with a notional value of over $10.5 billion.
• Forward look: Fincen said that UBS has agreed to cooperate with the order, which includes requirements that the firm retain certain documents for 6 years. 

The Treasury's Financial Crimes Enforcement Network Monday announced a $125 million penalty against UBS Financial Services for failure to implement the anti-money laundering reforms it agreed to as part of a 2018 enforcement action.

The penalty is the largest Bank Secrecy Act fine ever imposed on a broker-dealer. 

The penalty builds on unremediated violations stemming from the 2018 order, making Monday's announcement the second time in less than a decade that UBSFS has been found to have willfully violated the Bank Secrecy Act. UBS did not immediately respond to American Banker's request for comment. 

"For more than four years, UBSFS failed to appropriately monitor more than 61,500 foreign currency wires with an aggregate value of more than $10.5 billion," Fincen's order stated. "UBSFS's monitoring failure persisted into the second quarter of 2023, more than four years after the 2018 Consent Order. … These failures were that of a recidivist."

UBS Financial Services paid a $14.5 million civil penalty in 2018 after Fincen found the firm had longstanding gaps in its anti-money laundering program, including shoddy monitoring of foreign currency wire transfers, lacking compliance staffing and controls and a dearth of due diligence on correspondent accounts for foreign financial institutions. 

Regulators at the time found UBS' transaction monitoring systems failed to capture key information about billions of dollars in foreign currency wire transfers — including the sender, recipient and jurisdictions involved — willfully obscuring the firm's visibility into suspicious activity.

At the time, UBS told regulators it would replace its deficient monitoring system by mid-2019. Monday's enforcement action centers on Fincen's conclusion that the bank failed to follow through on this commitment. 

According to the consent order, UBS did not establish its revamped automated monitoring system until March 2021, nearly two years later than promised, and the system once implemented was still insufficient. Fincen said the new system failed to monitor thousands of foreign currency wire transfers, did not capture critical counterparty information, lacked basic exception-reporting controls to identify missing transactions and was implemented without adequate data testing or data lineage mapping. 

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As a result, the firm failed to properly monitor billions of foreign currency wire transfers through the second quarter of 2023, years after regulators and the bank agreed on the need to remediate the deficiencies.

Fincen also faulted UBS for failing to disclose the delays and implementation problems to regulators, despite senior executives knowing internally that the remediation project had slipped well beyond the timetable presented during the 2018 settlement.

Beyond the monitoring failures, Fincen said UBS maintained deficient customer due diligence procedures for a number of affluent, high-risk clients with ties to Russia and Latin America, including customers linked to Russian oligarchs, politically exposed persons and individuals associated with corruption investigations in these jurisdictions. Regulators said the firm repeatedly failed to properly assess customers' sources of wealth, investigate negative media reports, update customer risk profiles or impose appropriate monitoring. They say this led to dozens of delayed suspicious activity reports involving transactions worth tens of millions of dollars.

"Today's historic action against UBSFS should send a clear message that recidivist financial institutions will face severe repercussions," Fincen Director Andrea Gacki said in a statement. "Financial institutions that continue to violate the BSA jeopardize the integrity of our financial system, especially those that expose it to high-risk customers and activities without effective controls."

Gacki's comments come just days after she was appointed global head of sanctions at Citi beginning October 1.

The action comes as the Trump administration has been restrained in its approach to BSA enforcement. In describing the Federal Deposit Insurance Corp.'s proposed rule to narrow AML regulation on banks, FDIC Chair Travis Hill described the administration's approach as "focusing on effectiveness through better aligning regulation with risk" while maintaining "the tools necessary for regulators to take action if, for example, a bank is accepting duffel bags full of cash from drug cartels or funding terrorists overseas."