CommunityBank of Texas has agreed to pay penalties of $8 million to settle charges that it failed to counter money laundering activities.
CommunityBank is part of CBTX, which is in the process of merging with Allegiance Bank, another Houston-based community bank. CBTX has 35 branches, mainly in the Houston and Beaumont areas.
The penalties were levied by two different regulatory bodies, the Office of the Comptroller of the Currency and the Financial Crimes Enforcement Network.
The Bank Secrecy Act (BSA) requires banks to implement and maintain an effective anti-money laundering (AML) program in order to guard against money laundering through financial institutions.
The bank had an AML program in place. However, as implemented, the program was not adequate to meet the minimum requirements of the BSA. The bank had an enterprise-wide automated monitoring system that reviewed transactions and generated alerts for review by analysts. However, the compliance office was understaffed. In practice, the three BSA analysts were reviewing an average of 100 alerts per day.
In addition, the BSA case officer applied exemptions for customers whose activities were thought to be ‘well-known’. Exemptions were granted to customers who were later arrested or convicted of financial crimes.
The bank was also lax in fully completing questionnaires on new customer due diligence. In addition, there were many instances where it failed to file suspicious activity reports (SARs) on transactions over $5,000.
Illegal gambling and drug dealers
The regulators gave three examples where the bank should have reported suspicious activity.
- Customer A operated a used car dealership and a financing company. The businesses had 19 accounts at the bank. The accounts received suspicious deposits of large round dollar amounts sent by persons known to be gamblers. Although the automated AML system created alerts, the bank did not act or report them. In 2019, the customer pleaded guilty to tax evasion and money laundering associated with operating an illegal sports gambling business for over 30 years.
- Customer B was a former CPA who pled guilty in 2013 to a tax crime in relation to sports gambling. Despite that, the bank onboarded him as a new customer in 2017 and permitted him to open an account for a gambling establishment. The bank filed three incomplete SARs. Only after customer B was arrested in May 2019 for operating an illegal gambling ring, did the bank file an amended SAR reporting over $30 million in suspicious activity.
- Customer C and his family was onboarded as a new customer in 2009 but the customer due diligence paperwork was incomplete. The accounts subsequently showed red flag indicators such as frequent deposit of checks, absence of typical business activities and a high volume of fees imposed for insufficient funds. Despite that, and knowing there was law enforcement interest in 2018, the bank failed filed to file any SARs. until January 2020. In July 2020, the customer and several members of the family were arrested on chemical trafficking charges. It was only in September 2020, did the bank file a more substantial SAR.
After the bank was notified of an investigation by the regulators in 2018, it hired a new Director of Financial Crimes and increased AML staffing.