Wednesday, March 11, 2015

Department of Justice Announces Settlement with California Bank

The Department of Justice has settled civil and criminal charges against CommerceWest Bank concerning its failure to comply with the Bank Secrecy Act. The matter arises out of the bank’s relationship with one of its customers, a third party payment processor. The case underscores the impact of Project Choke Point and the increasing emphasis regulators and the Department of Justice are placing on the mantra "know your customer."

The complaint alleges that the bank’s customer, a third party payment processor, processed transactions for fraudulent merchants including a pay day lender who in turn made unauthorized withdrawals from consumer accounts. The complaint alleges that the bank ignored a series of "glaring red flags" including the following: thousands of complaints from consumers, complaints from other banks expressing their concern that the transactions were fraudulent, and an abnormally high return rate on transactions involving its customer. The complaint alleges that the bank failed to use due diligence in monitoring its customer and failed to comply with its statutory obligation to notify the government of suspicious illegal activity involving consumer fraud.

The consent decree requires the bank to engage in certification requirements for a period of ten years. Additionally, the bank has agreed to pay a $1 million civil penalty and an additional $1 million to the United States Postal Inspection Service’s Consumer Fraud Fund. The Department of Justice further reports that as part of the resolution of the criminal charges, the bank has agreed to give up any claim to the $2.9 million previously seized from the third party payment processor’s bank account.

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