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U.S. Bancorp failed to monitor suspicious transactions and other activities that should have raised money laundering alerts, and then its employees tried to hide the deficiencies from regulators, federal prosecutors in New York said Thursday.
In one particularly extreme example, federal prosecutors say the bank's anti-money laundering watchdogs looked the other way as a customer named Scott Tucker used several accounts to launder ill-gotten proceeds of a fraudulent payday lending scheme.
The government says U.S. Bank "willfully" failed to report the suspicious activity in a timely manner. Tucker was convicted in New York federal court last year of operating the illegal payday loan scheme, and in January he was sentenced to more than 16 years in prison.
The Minneapolis-based bank, the nation's fifth largest, will pay a total of $613 million, including $528 million in a deferred prosecution agreement with the U.S. attorney in Manhattan, who announced the company had made two felony violations of the Bank Secrecy Act.
The agreement also includes the Office of the Comptroller of the Currency, the Federal Reserve Board and the Treasury Department's Financial Crimes Enforcement Network.
U.S. Bank will reform its compliance and monitoring program and has accepted responsibility for its conduct, the U.S. attorney said in a statement Thursday. The bank skimped on staffing and resources that banks are supposed to have to thwart suspicious activities, the prosecutors said. The government said it would seek dismissal of the charges in two years assuming the bank carries out the reforms.
For about five years starting in 2009, U.S. Bank didn't set up or maintain adequate anti-money laundering systems, the government said. The staff devoted to this area was stretched thin and the bank's practices missed "substantial" numbers of suspicious transactions. And bank staff tried to hide these resource limitations from its regulator, the OCC, out of fear it would disapprove.
U.S. Bank also didn't monitor transactions by noncustomers offered in its branches through an outside money transmitting company, Western Union. U.S. Bank stopped allowing these transactions by noncustomers in 2014.
Tucker, operator of the payday lending scheme, was convicted of various charges of fraud, money laundering and truth-in-lending after a five-week jury trial.
From 2008 to 2012, he used sham accounts at U.S. Bank opened under the names of various Native American tribes. Most of the more than $2 billion in revenue and hundreds of millions of dollars in profit generated by the payday lending scheme flowed through those U.S. Bank accounts.
But bank employees disregarded warning signs, including his heavy spending with money out of the tribal bank accounts on personal items like a luxury vacation home in Aspen, Colorado, and a professional Ferrari racing team.
The bank closed the tribal accounts after press reports in 2011 raised questions about Tucker's businesses but didn't file a suspicious activity report, prosecutors said Thursday. Still other accounts Tucker had were left open, allowing another $176 million from the payday lending scheme to flow through the bank.
U.S. Bank didn't file a suspicious activity report regarding Tucker until it received a subpoena from the U.S. attorney in Manhattan in 2013, despite knowing the Federal Trade Commission had filed suit against Tucker.
Shares of U.S. Bank, a longtime holding of Warren Buffett's Berkshire Hathaway, were down 0.2 percent in trading Thursday. It is the second of Berkshire's big bank holdings, Wells Fargo being the other, to face regulatory heat in recent years.
U.S. Bank said in 2015 that it had entered a consent order with the comptroller over anti-money laundering lapses. On Thursday it said it had already set the money aside to pay for resolving the matter.
"We regret and have accepted responsibility for the past deficiencies" in the anti-money laundering program, U.S. Bank's president and CEO, Andy Cecere, said in a statement. "Our culture of ethics and integrity demands that we do better."