A Citigroup subsidiary based in Southern California agreed to forfeit $97 million to resolve an investigation into federal Bank Secrecy Act violations involving nearly $142 million in suspicious transactions to Mexico.
The subsidiary, Banamex USA, is based in Los Angeles. Locally, CitiBank has branches in Napa and ATM locations in Novato, Petaluma, San Rafael and Sonoma.
In its agreement with the Justice Department to avoid criminal prosecution, Banamex admitted to violations in failing to file Suspicious Activity Reports and guard against money laundering. From 2007 to at least 2012, the company processed some 30 million remittance transactions to Mexico, valued at $8.8 billion. During that time, the system kicked out more than 18,000 alerts regarding $142 million in potentially suspicious transactions, but the bank only filed nine suspicious-activity reports, and none from 2010 to 2012.
The case is the first strong indicator that the DOJ under new Attorney General Jeff Sessions will crack down on banks that handle suspicious transactions that could involve illegal drugs. Under the Controlled Substances Act of 1970, cannabis is a Schedule I drug, federally illegal. Yet cannabis for medical use has been legal in California since 1996, and adult-use cannabis was legalized in November under Proposition 64.
“Banamex USA employed a limited and manual transaction-monitoring system,” the DOJ said in a a statement, “running only two scenarios to identify suspicious activity on the millions of remittance transactions it processed.”
In a related matter in 2015, the Federal Deposit Insurance Corporation and California Department of Business Oversight ordered Banamex USA to pay $140 million as a penalty for violations of the Bank Secrecy Act, also passed in 1970. That law requires financial institutions to keep records of cash transactions of $10,000 or more in a day and of multiple cash transactions by the same individual or business at lower amounts if the total exceeds $10,000.
In March of this year, the FDIC launched enforcement actions against four former senior executives of Banamex USA. One executive was fined, another barred from working at financial institutions, and two executives were both fined and barred.
The FDIC office in San Francisco participated in the investigation. The Department of Business Oversight regulates banks in California. Jan Lynn Owen, commissioner of the department, visited Santa Rosa on May 4 for a conference of the Cannabis Banking Working Group, created by John Chiang, state treasurer, after passage of Prop. 64.
Owen was a strategic-initiatives manager at Apple from 2009 to 2010, and worked at JP Morgan Chase and Washington Mutual.
As part of the decision not to proceed with prosecution under the recent settlement, the bank agreed to “exiting Banamex USA’s money-service business entirely, and ultimately ceasing all banking operations,” the DOJ said. “Citigroup further agreed to report to the Justice Department regarding implementation of compliance measures to improve oversight of its subsidiaries’ Bank Secrecy Act compliance.”
James Dunn covers technology, biotech, law, the food industry, and banking and finance. Reach him at email@example.com or 707-521-4257
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