Tuesday, February 28, 2017


A $7m Civil Penalty, levied against Merchants Bank of California, for what were referred to as "egregious"violations, shows that Federal banking regulators, in 2017, are focusing upon the required due diligence that banks must conduct on their foreign correspondent accounts. Close to $200m was flushed through MSB accounts owned and controlled by senior bank officers, who saw that no effective compliance was conducted upon those foreign transactions.

Just as important is the mention that accounts, all located in high-risk foreign jurisdictions, were never identified as foreign correspondent customers. Apparently the bank's  officers, who were MSB owners themselves, suppressed all compliance actions against their own clients, and their clients' clients. They also allowed their foreign correspondents to engage in Remote Deposit Capture, which gave them total bank access, with bank officers either asleep at the switch after lunch, or not caring about money laundering

Needless to say, the fact that a few Merchants Bank officers deliberately ordered compliance evasion on customers of their own MSBs, and your lack of knowledge of who owned what, means that staff at this bank are off-limits, as a risk-based precaution, as hires anywhere else. You simply do not know who the bad guys in the bans are, and you must red-line everyone.

This decision confirms that any failure to Know your Customers' Customers will be dealt with in a swift and severe manner, as KYCC is no longer optional. total KYCC malpractice seems to be the 2017 focus of US regulators, and with good cause; many correspondents, for reasons previously detailed on this blog, are simply not achieving adequate KYC on its own customer base. It is, frankly, up to the North America-based onshore bank to  do so, through KYCC, or delete the foreign correspondent from its relationships, lest regulators slap a hefty, but justified, public fine upon it, for not knowing who its correspondent maintains as clients.

Do you actually know who your correspondents' customers are ? If not, why not ? 

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