AML Regulators Target Capital One’s Check Cashing Businesses


Check cashing businesses are a major focus of anti-money laundering rules and regulations. Investors recently learned that federal and New York prosecutors are currently investigating Capital One Financial Corp.’s anti-money laundering program and “certain check casher clients” from the financial institution’s annual report – offering the perfect opportunity to review the regulatory expectations for check cashing businesses.

Regulators Scrutinize Capital One’s Anti-Money Laundering Program Compliance

Capital One’s annual report released February 23 stated that the U.S. Department of Justice, U.S. Treasury Department’s Financial Crimes Enforcement Network and the Manhattan District Attorney’s office are currently investigating “certain check casher clients” from its commercial banking business and looking into the internal safeguards of its anti-money laundering (AML) program.

Capital One is cooperating with the investigation.

Capital One’s check cashing businesses first entered regulators’ crosshairs in 2006 when it acquired North Fork Bancorporation Inc. and took on North Fork’s obligations with the Federal Deposit Insurance Corporation and the New York State Banking Department regarding possible AML compliance deficiencies.

Seven years later, the New York DA’s office sent Capital One a grand jury subpoena concerning its check-cashing businesses and AML program.

In 2015, the Office of the Comptroller of the Currency (OCC) sent Capital One a consent order which found that Capital One failed to file mandatory Suspicious Activity Reports and that its AML compliance program exhibited “an inadequate system of internal controls and ineffective independent testing.”

The OCC consent order required Capital One to evaluate the money laundering risk for each line of business, design procedures for performing due diligence examinations of customers and present a detailed AML program plan to the OCC. Capital One neither admitted nor denied the findings.

In October 2016, shareholder Michael Reiter filed a lawsuit alleging that directors knowingly disregarded red flags regarding AML risks. The Delaware Chancery Court dismissed the lawsuit, finding that, at most, Capital One directors disregarded “yellow flags of caution” regarding the AML risk that occurred “in tandem with heightened regulatory scrutiny of AML compliance in the financial services industry.”

Chancellor Andre Bouchard stated that Capital One regularly informed the board of its compliance efforts, appointed a new chief AML officer and performed monthly training and quarterly audits.

Bank Secrecy Act Requirements for Check Cashing Businesses

Check cashing businesses are a frequent target of regulatory agencies assessing AML program compliance under the Bank Secrecy Act of 1970.

The Bank Secrecy Act of 1970 requires that U.S. financial institutions aid the government in detecting and preventing money laundering activities by establishing program, recordkeeping, and reporting requirements for national banks, federal savings associations, federal branches, and agencies of foreign banks.

The Bank Secrecy Act requires that U.S. financial institutions:

  • Maintain a system of internal controls and independent testing to ensure continued Bank Secrecy Act and AML compliance
  • Provide appropriate personnel training
  • Assign an individual responsible for coordinating and monitoring daily compliance
  • Implement a written Customer Identification Program appropriate to the financial institution’s size and risk profile
  • File Suspicious Activity Reports upon detection of suspected federal law or regulation violations

Helpful Resources for A Robust Anti-Money Laundering Compliance Program (Subtitle)

U.S. regulatory agencies released the Interagency Interpretive Guidance on Providing Banking Services to Money Services Businesses Operating in the United States in 2005 to provide financial institutions with guidelines to integrate into their AML programs, including minimum policies, procedures and controls regarding banking services for check cashing businesses.

Another good resource for AML program compliance is the Federal Financial Institution Examination Counsel BSA/AML Examination Manual, which states:

“The cornerstone of a strong Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance program is the adoption and implementation of internal controls … The requirement that a financial institution know its customers, and the risks presented by its customers, is basic and fundamental to the development and implementation of an effective BSA/AML compliance program.”

As regulators continue to seek out check cashing businesses with AML program weaknesses, it is an opportune time for financial institutions and compliance officers to reassess their own AML programs for deficiencies. If you have questions regarding Anti-Money Laundering program compliance, a Herskovits PLLC securities lawyer is happy to answer your questions and help you avoid any potential issues. 212.897.5410 or Connect by Email

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