The Financial Crimes Enforcement Network has assessed a $1.5 million civil money penalty against The Kingdom Trust Company, a South Dakota chartered trust services company with offices in Murray, Kentucky and Sioux Falls, South Dakota.
The statement of facts in the consent order describes the services provided by Kingdom Trust: during the period between February 2016 and March 2021, the company provided account and payment services to foreign securities and investment and money services businesses – including some located in high-risk jurisdictions such as Latin America – in addition to its primary business of providing custody services to investment advisers and clients with individual retirement accounts. According to FinCEN, Kingdom Trust failed to identify and report suspicious transactions connected with its Latin America business during the relevant period, in contravention of the requirements of the Bank Secrecy Act, which characterizes a transaction as suspicious if a bank knows, suspects, or has reason to suspect that it involves funds derived from illegal activities, is conducted to disguise funds derived from such activities, is structured so as to evade the reporting and recordkeeping requirements of the BSA, has no apparent lawful or business purpose, or is not the type of transaction in which the customer is expected to engage.
Specifically, in 2014 Kingdom Trust began working with a consulting group that had offices in Buenos Aires, Dublin, and Washington, D.C. Despite its lack of experience dealing with foreign securities firms, the bank opened accounts for broker-dealers in Argentina and Uruguay that had been referred to it by the consulting group, even after being told explicitly that the customers had been unable to open bank accounts in the United States. Kingdom Trust proceeded to service these customers, allowing at least $4 billion in payments for foreign entities through the US financial system. Kingdom Trust’s high-risk customers included a Uruguayan money services business, a Nevis-based tourism services company managed by an Australian national, a British Virgin Islands private mutual fund with Argentinian directors, and a Panamanian holding company whose director was the subject of adverse media related to possible involvement in money laundering. During the relevant period, several financial institutions with which Kingdom Trust maintained correspondent bank accounts closed those accounts, including one that told Kingdom Trust personnel that the company processed more payments than all of the correspondent bank’s customers combined.
The account closures raised red flags with Kingdom Trust’s management, which engaged a third party to conduct an anti-money laundering and Bank Secrecy Act audit. Yet, in the face of audit results that specifically cited deficiencies related to Kingdom Trust’s high-risk customers, the bank did not make meaningful changes to its controls, file suspicious activity reports, or cease dealing with the high-risk Latin American customers.
According to FinCEN, Kingdom Trust’s process for identifying and reporting potentially suspicious activity was underdeveloped and ad hoc throughout the relevant period, the bank’s personnel did not fully understand SAR filing requirements, and in general the bank lacked sufficient personnel with experience in anti-money laundering compliance. These deficiencies resulted in the bank’s failure to timely and accurately file suspicious activity reports for hundreds of suspicious transactions, constituting a willful failure to comply with BSA reporting requirements, as described by FinCEN. Examples provided in the statement of facts include:
- Nearly 200 transactions worth approximately $16 million for the purported tourism company customer, including large round-dollar payments sent to multiple individuals with no tourism-related justification;
- Over 400 transactions worth approximately $63 million for a supposed financial services company, including 150 wire transfers to suspicious mobile phone operators in Florida, some of which were later referenced in an indictment alleging receipt of illegal drug proceeds, and;
- Dozens of transactions by perpetrators of apparent securities fraud.
These facts led FinCEN to conclude that Kingdom Trust had willfully failed to accurately and timely report suspicious transactions, in violation of 31 USC. § 5318(g) and its implementing regulation, 31 CFR § 1020.320. The bank expanded into a new line of business that entailed unfamiliar and elevated risks, without devoting appropriate resources to identify and report suspicious transactions; it used an inadequate and inefficient manual process to identify suspicious transactions, and ultimately failed to file suspicious activity reports in hundreds of transactions that could easily, and should have been, flagged as suspicious.
In considering whether to impose a civil money penalty, FinCEN deemed Kingdom Trust’s violations – which were pervasive, and substantial both in volume and dollar value – to have caused significant possible harm to the public, and to have had a negative impact on FinCEN’s mission to safeguard the financial system from illicit use and money laundering. During the relevant period, Kingdom Trust was slow to address the risks posed by its high-risk customers, and did not voluntarily disclose the violations to FinCEN. However, the bank did provide substantial cooperation to FinCEN during the course of the investigation.
In light of these considerations, FinCEN resolved to impose a civil money penalty of $1.5 million. In addition, the consent order requires Kingdom Trust to engage a qualified independent consultant to conduct a suspicious activity lookback review, and to report to FinCEN by January 2024. In accordance with the consultant’s report, Kingdom Trust shall file suspicious activity reports for all relevant transactions. The consent order also requires Kingdom Trust to engage a qualified independent compliance consultant to review and report on the bank’s anti-money laundering program; the bank must adopt and implement the consultant’s recommendations. Finally, Kingdom Trust undertakes, pursuant to the consent order, to continue cooperating in FinCEN’s investigation.