Other people's money: international banking is still going strong in South Florida despite challenges from bank regulators and patrons made anxious by tough efforts to thwart terrorism

South Florida CEO,  March, 2005  by Mike Seemuth

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In the era of stepped-up enforcement that has prevailed since Sept. 11, 2001, no massive penalty has been assessed against a South Florida bank for shirking its duty to have an adequate system for detecting money launderers. But some eye-popping penalties doled out elsewhere have garnered attention.

None of the most shocking headlines of the year outdid the May 2004 announcement that Washington-based Riggs Bank NA consented to be assessed a civil monetary penalty of $25 million for violating the federal Bank Secrecy Act, which requires banks to guard against the use of their accounts for money laundering through various means, including large-cash transaction reports. The penalty assessment was such a landmark event that banking industry leaders like Roth now refer to "the post-Riggs Bank environment."

The $25 million penalty Riggs consented to was the largest of its kind ever brought against a US financial institution. A unit of the US Department of Treasury known as FinCEN, short for the Financial Crimes Enforcement Network, brought the case against Riggs and charged the institution with "willful, systemic violations" of the federal regulations requiring banks to report large transfers of currency and other transactions that seem suspicious.

More recently, FinCEN and the Board of Governors of the Federal Reserve System announced on Oct. 12, 2004, that they jointly assessed a $10 million civil penalty against AmSouth Bank of Birmingham, Ala., for its violations of the Bank Secrecy Act. In case documents, the two agencies said they found "systemic defects in AmSouth's [anti-money laundering] program with respect to internal controls, employee training and independent review that resulted in failures to identify, to analyze and report suspicious activity occurring at the bank."

Just trying to avoid a big fine can cost millions. Consider the cost of compliance at Fort Lauderdale-based BankAtlantic. For third quarter 2004, "we spent approximately $2 million in connection with our efforts to fully comply with the USA Patriot Act, anti-money-laundering laws and the Bank Secrecy Act, which have imposed far-reaching and substantial requirements on financial institutions," BankAtlantic chairman and CEO Alan Levan said in a prepared statement that accompanied the bank's quarterly earnings report. BankAtlantic was expecting to spend another $2 million during fourth quarter 2004, Levan said, as well as higher ongoing compliance costs due to the institution's "identification of deficiencies in the past, requiring a thorough review of previous compliance under these laws. We are cooperating with federal agencies in connection with the past deficiencies. We cannot provide assurance that monetary penalties will not be imposed."

Monetary penalties may pack a wallop, but bank regulators also are meting out non-monetary forms of punishment. Indeed, one of the most widely watched enforcement actions in South Florida arising from an investigation of money-laundering detection systems is a case the Office of the Comptroller of the Currency (OCC) brought against International Bank of Miami NA, a Coral Gables-based financial institution.