A Massive US Bank Now Gets Hit With AML Investigation

September 14, 2024

A massive US bank now gets hit with an AML investigation over flaws related to its internal controls and crimes risk management.

The Office of the Comptroller of the Currency (OCC) has taken enforcement action against Wells Fargo, raising concerns about the bank’s anti-money laundering (AML) controls and financial crimes risk management.

This development could impact the potential lifting of Wells Fargo’s asset cap and might signal increased scrutiny for other major banks.

On Thursday, the OCC announced it found several deficiencies in Wells Fargo’s AML practices, including issues with suspicious activity reporting, customer due diligence, and customer identification protocols.

The regulatory agreement mandates that Wells enhance its AML and sanctions risk management, secure OCC approval for new offerings, and notify the agency before expanding certain services.

Wells Fargo stated it is already addressing many of the requirements outlined in the agreement and is committed to resolving them with urgency.

Analyst Scott Siefers from Piper Sandler noted that while the formal action was anticipated, it still represents a setback in the bank’s progress to resolve regulatory issues.

Wells Fargo has been under the regulatory microscope since the fallout from its 2016 fake accounts scandal.

Currently, the bank operates under a $1.95 trillion asset cap imposed by the Federal Reserve, one of nine consent orders against it, though six have been lifted since Charlie Scharf became CEO.

The OCC’s 26-page agreement, which did not impose any fines, requires Wells to improve its internal controls and reporting mechanisms related to AML and sanctions practices.

The bank must also enhance its audit program and ensure data integrity for compliance systems.

Jefferies analyst Ken Usdin noted that the broad requirements could impact Wells Fargo’s future growth strategy, but the practical implications remain unclear.

Despite the seriousness of AML issues, Royal Bank of Canada analyst Gerard Cassidy believes this enforcement action will not hinder efforts to lift the asset cap, as it primarily addresses past consumer banking problems.

Wells Fargo has invested significantly in its risk and control operations, hiring around 10,000 employees and increasing spending by $2.5 billion annually since 2018.

This suggests the new regulatory action may not drastically alter overall costs.

Other major banks have also faced scrutiny regarding their AML and sanctions programs.

Bank of America and Citi have highlighted related risks in their recent filings, while JPMorgan Chase continues to disclose ongoing investigations from a 2019 money-laundering incident in India.

Additionally, Canadian lender TD is under investigation for its U.S. AML program related to drug trafficking allegations.

As the financial landscape evolves, the potential for similar enforcement actions against other banks remains uncertain, leaving the industry on alert.

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Also Read: The US Treasury Direct is Now Freezing Customer Accounts

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Citibank now fires a whistleblower for ‘underperformance’, after the former employee provided records requested by the OCC.

Citi has filed a countersuit against its former employee, Kathleen Martin, alleging that she was terminated not for refusing to falsify records for the Office of the Comptroller of the Currency (OCC), as she claimed in her lawsuit from May, but rather for being unable to properly fulfill the duties of her role.

Martin, who was let go from her position as Citi’s interim data transformation chair in September 2023 after nearly two years with the bank, had alleged in her lawsuit that she was fired for not agreeing to Chief Operating Officer Anand Selva’s request to conceal information from the OCC that would make the lender “look bad.”

In a revised lawsuit, Kathleen Martin has accused Citi’s Chief Operating Officer Anand Selva of intentionally deceiving the bank by wanting to misrepresent Citi’s compliance metrics to the Office of the Comptroller of the Currency (OCC).

Martin claims Selva sought to conceal information from the OCC that would have made the bank “look bad.”

However, Citi maintains that Martin’s termination in September 2023 was not due to her refusal to falsify records, but rather because she lacked the necessary “leadership and engagement skills” to effectively execute the role of interim Data Transformation Chair, which she had been appointed to after the previous chair, Rob Casper, departed the company.

Citi asserts that during Martin’s interviews and assessment for the interim role, it was identified that she needed to improve in areas like her “dogmatic nature, lack of innovation and lack of experience driving the execution of complex change across Citi.”

Once Casper left, Citi’s senior leadership, including COO Selva, determined that Martin could not successfully fulfill the demands of the interim chair position.

According to Citi, COO Anand Selva tried to help the plaintiff, Kathleen Martin, improve her performance in the interim Data Transformation Chair role.

Selva allegedly set up one-on-one meetings and working groups to facilitate better collaboration and working relationships with stakeholders.

Selva’s HR team also provided Martin with a senior mentor to support her development.

In May 2023, Citi leadership discussed a plan to improve Martin’s performance.

In July, Selva conveyed Martin’s mid-year review before she raised any concerns about his behavior.

Soon after, Martin contacted HR and expressed fears about her job security.

Citi claims that Martin “felt her position was at risk,” but the bank asserts that internal documents showed she “exceeded expectations” and that CEO Jane Fraser had commended her for her “gravitas” and ability to build “strong relationships” at the bank.

However, Citi says Martin failed to heed the feedback provided, and she was ultimately removed from the Data Transformation Chair role because she lacked the “executive level relationships” and leadership needed to successfully execute the data transformation efforts.

Citi says the data transformation work was too critical for the bank to tolerate Martin’s underperformance.

Citi denies Martin’s claims that she protested the reporting of a key metric accurately or that Selva objected to it.

The bank says Selva and Martin met in September 2023 to discuss reporting certain metrics using red, amber, and green scales.

Also Read: A Massive US Bank is Now Closing Credit Cards

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