Zions Bancorp.’s (ZION) banking subsidiary, Zions First National Bank was fined $8 million over non-compliance of the Bank Secrecy Act (BSA) and the USA Patriot Act on Friday. The fine was levied by the Office of the Comptroller of the Currency (OCC) and the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).
Though Zions had violated two Acts, the regulators stated that they would be satisfied by a single payment of $8 million as a fine to the U.S. Treasury Department.
In 2006-07, Zions had started a remote deposit capture product, allowing the customers from far-off places to deposit money electronically. The company had marketed the product to the high-risk customers without proper compliance to the BSA and anti-money laundering rules. The OCC stated that the company had also failed to file Suspicious Activity Reports for its foreign correspondent service customers on a timely basis.
The FinCEN commented that Zions had failed to report nearly 132 cases of suspicious activity. According to FinCEN, apart from other things, these doubtful activities included transactions involving firms and accounts alleged to be involved in drug trafficking activities, unusual wire transfers, and sequentially numbered travelers checks. The company had processed various money transfers whose patterns indicated money laundering activities.
Zions had failed to adequately monitor the activities of its foreign customers, including $7.9 million of transfer activity to a money service business located in Mexico. However, in early 2008, the company’s unit exited the foreign correspondent line of business and willingly reviewed and reported suspicious activity to the regulators. FinCEN stated that after reviewing its activities, Zions had filed 20 reports of suspicious activity involving about $11.5 billion.
This is not the first time that Zions has been fined by the regulators. In August 2010, also the company’s business unit Zions Direct Inc. had to pay $225,000 to the Financial Industry Regulatory Authority, for failing to disclose a potential conflict of interest in online auctions of certificates of deposit.
Such fines will give a strong message to the various banks that they should remain vigilant and have proper anti-money laundering mechanism in place. The banks are required to stay updated about the various risks involved while developing and launching new products. We believe they should follow government advisories, publications, and other relevant materials to mitigate such risks.
Zions currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. Moreover, considering the company’s business model and fundamentals, we also maintain a long-term ‘Neutral’ recommendation on the stock.
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