Alert February 05, 2008

Money Services Firm Pays in Excess of $20 Million for Anti-Money Laundering Program Deficiency

Sigue Corp. (“Sigue”), a California-based money services business, agreed to settle a civil money penalty action brought by the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) and concurrently entered into a one-year deferred prosecution agreement with the Department of Justice.  In so doing, Sigue did not admit to any wrongdoing, but agreed to pay in excess of $20 million to the U.S. government for asserted violations of the Bank Secrecy Act (“BSA”).

The Sigue case, as with the many high-profile BSA enforcement cases that have preceded it, highlights again the risks of having a deficient anti-money laundering program.  The enforcement action also may again make bankers wary of doing business with money transmitters; many banks have discontinued transactions with money services businesses for fear of the exposure of such businesses to money laundering risks, and the Sigue enforcement action may continue and accelerate the trend.  Finally, some have suggested that the Justice Department’s action and, in particular, its citation that Sigue failed to “prevent” money laundering may signal that financial institutions are being held to a new, higher BSA standard – one that not only requires financial services firms to detect and report money laundering and criminal activities, but also to take more affirmative steps to prevent such activities.

The Sigue enforcement action arose because, from November 2003 through June 2006, Sigue’s anti-money laundering program was allegedly deficient in each of its four required core elements.  Specifically, according to FinCEN, Sigue lacked effective anti-money laundering controls, did not have adequate compliance personnel, and had insufficient training and testing.  FinCEN called Sigue’s BSA compliance failures “serious, longstanding and systemic” and stated that these failures resulted in Sigue’s failure to apprehend “continued patterns of suspicious activity, with repeated common characteristics.”

In terms of internal controls, FinCEN asserted that Sigue’s transaction monitoring system was not commensurate with the volume, dollar amounts, and geographic reach of the company’s transactions.  The company also allegedly failed to conduct timely reviews of transactions and neglected to investigate and prevent misuse of its business by criminals.  As a result, FinCEN found that 47 Sigue agents had assisted remitters to structure transactions to avoid BSA reporting requirements.  The Justice Department also asserted that, although Sigue filed suspicious activity reports on “obviously structured transactions,” the company failed to identify “broader patterns of money laundering activity and prevent the unlawful activity from continuing.”

These deficiencies were coupled with other alleged problems.  FinCEN noted, for example, that there were insufficient numbers of compliance personnel for Sigue’s operations and that the roles, responsibilities, and oversight of the compliance function were not adequately defined.  Similarly, FinCEN found Sigue’s training program generally to be inadequate and, in some cases, training was neither completed nor documented.  The testing function also was lacking, according to FinCEN.  Specifically, FinCEN determined that audits were not tailored to test and capture compliance for certain BSA requirements, particularly involving high-risk agents.