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Termination of Bank Secrecy Act/Anti-Money Laundering Consent Orders Summary

The Office of Inspector General of the Federal Deposit Insurance Corporation (FDIC) has issued a report on the FDIC’s Termination of Bank Secrecy Act/Anti-Money Laundering Consent Orders.  

Money laundering is a serious crime that aims to conceal or disguise the illicit proceeds of another unlawful activity.  The Bank Secrecy Act (BSA) has established recordkeeping and reporting requirements for financial institutions to implement -- in order to detect and prevent money laundering.  The FDIC’s examinations of banks for compliance with these requirements are essential elements in identifying potential weaknesses in a bank’s BSA/Anti-Money Laundering (AML) program.

When a financial institution is not in compliance with such requirements, the FDIC may issue a Consent Order— which is a formal enforcement action against a bank.  A BSA/AML Consent Order often contains several provisions for improvements to the bank’s program, and FDIC examiners review a bank’s progress in addressing these Consent Order provisions.

Our office conducted an evaluation to determine whether the FDIC (i) considered factors similar to other Federal bank regulators in terminating BSA/AML Consent Orders; (ii) terminated BSA/AML Consent Orders in accordance with FDIC-established guidance; (iii) monitored FDIC Regional Office termination decision-making to ensure consistency across the Regions; and (iv) and documented its actions.

We found that the factors considered by the FDIC to terminate Consent Orders differed from the factors used by the Federal Reserve Board and the Office of the Comptroller of the Currency.  When Consent Orders are issued, all provisions requiring correction are published on the FDIC website; however informal actions are not issued publicly.  In some cases, the FDIC may terminate a Consent Order when provisions are in “substantial compliance” or “partially met.”  Therefore, in terminating an FDIC Consent Order, it will be removed from the website – even if not all of the provisions have been corrected.  As a result, these website postings make it appear to the public, bank customers, and bank investors that all Order provisions have been corrected, although some previously-publicized Order provisions may not have been met.

We further found that the FDIC did not provide guidance to its examiners in how to apply the terms, “substantial compliance” and “partially met,” as a basis for terminating a Consent Order.  The term, “partially met,” provides extremely wide latitude to terminate a Consent Order when any portion of it is met.  As a result, the FDIC could not be certain that some Consent Orders were terminated using a consistent interpretation of these terms.  

In addition, we found that:

  • Termination decisions were not centrally monitored, which would serve as an important internal control.  
  • The FDIC did not consistently prepare and maintain documentation in its systems of record to support the monitoring and termination decisions for BSA/AML Consent Orders. 

Incorrect documentation of Consent Order terminations caused the FDIC to provide nine incorrect reports to the FDIC Board of Directors concerning enforcement actions; and caused the FDIC not to report three BSA/AML Consent Order terminations to the Financial Crimes Enforcement Network (FinCEN) in the Department of the Treasury. 

We made 10 recommendations to enhance the FDIC’s BSA/AML Consent Order termination guidance and procedures.