Ocean Bank, Miami, Florida, was charged by regulators with willfully failing to establish controls to identify and report money laundering and other suspicious activity. The Bank’s failure to properly comply with anti-money laundering laws allowed Mexican drug cartels to launder millions of dollars from illegal narcotics sales through Ocean Bank.
Ocean Bank, which was founded in 1982, is the largest independent bank in Florida with total assets of $3.5 billion and 21 branches.
A lengthy investigation by the FDIC, the Treasury’s Financial Crimes Enforcement Network and the State of Florida determined that Ocean Bank failed to investigate suspicious account activity and also failed to sufficiently staff its compliance division. In a joint press release the investigating agencies announced a civil money penalty of $10.9 million against Ocean Bank for violations of anti-money laundering and Bank Secrecy Act laws and regulations.
Regulators said that “The Bank failed to recognize and mitigate risks and report transaction activity often associated with money laundering involving direct foreign account relationships in high-risk jurisdictions, particularly Venezuela. The Bank’s failure to respond to such risk with commensurate systems and controls was both systemic and longstanding.” Regulators also said that Ocean Bank “failed to implement an effective BSA/AML (Bank Secrecy Act/Anit-Money Laundering) Compliance Program with internal controls reasonably designed to detect and report money laundering and other suspicious activity in a timely manner.”
Although Ocean Bank reportedly ignored suspicious account activity from 2001 through 2008, this apparently raised no red flags at the FDIC which is responsible for ensuring the Bank’s compliance with money laundering laws. The FDIC did not comment on how they overlooked for 7 years Ocean Bank’s failure to have proper internal controls to prevent money laundering.
Also inexplicable is the failure of the Feds to file criminal charges against bank management. Ocean Bank was allowed to settle all charges “without admitting or denying the allegations” and all violations of laws and regulations “was satisfied by a single payment to the U.S. Government” of $10.9 million. Despite the failure of hundreds of banks since 2008, trillions of dollars in losses and widespread fraud, not one single bank executive has gone to prison.
The U.S. Attorney’s Office said that it would defer prosecution since Ocean Bank cooperated and was willing “to acknowledge responsibility for its actions.” After 24 months, if Ocean Bank complies with terms of the settlement agreement, the Attorney General “agrees to dismiss the criminal information.” This seems astonishingly lenient after the Feds acknowledged that Ocean Bank’s failure to comply with anti-money laundering laws was “both systemic and longstanding.”
Despite buying its way out of money laundering charges, Ocean Bank still faces a host of other problems. On May 2, 2011, Ocean Bank signed a Consent Order with the FDIC and state of Florida in which regulators listed a long list of operating, managerial and financial deficiencies that required immediate corrective action by the Bank.
Within 60 days from the date of the Consent Order, regulators required Ocean Bank to have Tier 1 Leverage Capital of 8% and Total Risk-Based Capital of 12%. Sixty days has come and gone and after a loss for the quarter ended June 30, Ocean Bank’s capital levels dropped to 4.51% and 8.66%, respectively. Although the bank is considered “adequately capitalized” by regulators, Ocean Bank remains a problem bank. The Bank’s troubled asset ratio is at 156% – most banks that exceed a ratio of 100% wind up failing. Ocean Bank is given the lowest score possible by depositaccounts.com which calculates bank health ratings.
The money laundering charges against Ocean Bank may turn out to be the least of the Bank’s problems unless they are able to quickly raise additional capital.