9th Circuit Affirms FDIC BSA Enforcement Action
On March 13, 2018, the U.S. Court of Appeals for the Ninth Circuit affirmed an order by the FDIC Board, which found that a California community bank violated the Bank Secrecy Act (BSA) by failing to establish and maintain a satisfactory BSA compliance program. As a result, the bank must comply with a cease and desist order issued by the FDIC and implement a plan to bring the bank into compliance with the BSA.
The FDIC Board’s order stemmed from an FDIC administrative judge’s ruling, based on two FDIC examinations conducted in 2010 and 2012, that the bank failed to administer a BSA compliance program in accordance with the “four pillars” of BSA compliance as interpreted by the FFIEC Manual: (1) strong internal controls; (2) independent testing of the institution’s BSA program; (3) designated BSA compliance officers; and (4) implementation of a BSA employee training program. For example, the FDIC found that the bank’s designated BSA compliance officer had inadequate experience and was not qualified to serve as the person responsible for BSA compliance training, which rendered the employee BSA training program insufficient. The FDIC Board also agreed with the administrative judge’s finding that the bank failed to file a Suspicious Activity Report (SAR) relating to several transactions. The bank appealed to the Ninth Circuit.
On appeal, the bank argued that the BSA’s regulations are unconstitutionally vague and that the FDIC conducted a biased investigation that violated its due process rights. The bank also claimed that the FDIC administrative law judge was biased in his proceedings by failing to consider certain details of the 2010 FDIC review.
The Ninth Circuit disagreed and affirmed the FDIC Board’s decision. The Ninth Circuit held that the BSA and its implementing regulations are not unconstitutionally vague, and that the FDIC did not exhibit unconstitutional bias against the Bank. The Ninth Circuit further held that the FDIC Board’s decision was supported by substantial evidence.
