OIG raps FDIC over terminations of BSA/AML consent (enforcement) orders, recommends improvements

An analysis of how the federal bank deposit insurer terminates Bank Secrecy Act/anti-money laundering (BSA/AML) consent enforcement orders led to the agency’s inspector general office citing a lack of transparency on the agency’s part and submitting 10 recommendations for improvement.

The Federal Deposit Insurance Corp. (FDIC)’s Office of Inspector General (OIG) compared the agency’s terminations of BSA/AML consent orders with terminations by the Federal Reserve and the Office of the Comptroller of the Currency (OCC). In its December report, it said the factors used by the FDIC in terminating one of the sampled orders differed from those used by the Fed, with the Fed maintaining the consent order with the same institution longer than the FDIC maintained it. The FDIC in this case terminated its order but included uncorrected provisions in an informal enforcement action, which is not publicly disclosed.

“In terminating its Consent Order, the FDIC limited transparency and may have given the public – including bank customers and investors – the impression that the bank had complied with all previously-issued BSA/AML Consent Order provisions,” it wrote.

The OIG also noted that for the 10 consent orders reviewed in its sample, it found that:

  • Six consent order terminations appeared to be within FDIC guidance, because the banks addressed provisions prior to termination of the Order.
  • For four consent order terminations, FDIC guidance did not address how to apply the terms “substantial compliance” and “partially met.” As a result, the FDIC could not be certain that these four consent orders were terminated using a consistent interpretation of these terms. It appeared that the four banks partially met at least some of the provisions of these orders. However, the term “partially met” provides extremely wide latitude to terminate a consent order when any portion of it – large or small, significant or insignificant – is met.

The OIG took issue with the way the FDIC published a consent order termination with partial or substantial compliance, noting it “leaves the public, bank customers, and bank investors with the impression that all Order provisions were fully met.” The FDIC disagreed, but the OIG said that for one of the banks in its sample, the agency’s termination order, posted on the agency’s website, indicated that “all Order provisions were terminated” even though there had only been “substantial compliance” with the order provisions.

It said such website postings “make it appear to the public, bank customers, and bank investors that all Order provisions have been corrected, even though some previously-publicized Order provisions had not been addressed and were included by the FDIC in informal enforcement actions that were not transparent to the public.”

The OIG’s recommendations include nine for the agency’s Risk Management Supervision (RMS) director and one for its general counsel. These recommendations, among other things, urged that the agency’s RMS director develop and implement BSA/AML consent order termination policies and procedures to better align with those of the other federal bank regulators to promote consistency in terminating BSA/AML consent orders.

It also recommended that the RMS director define FDIC guidance ad terminology regarding circumstances for terminating BSA/AML orders; and indicate on the agency’s website when orders were terminated when the bank partially complied with the original provisions, noting which provisions remained uncorrected after the order was terminated. Several of the recommendations focused on improved procedures across the agency. To the general counsel for the FDIC, the OIG recommended that that individual “implement control procedures to ensure the publication of termination or modification of consent orders and validate the accuracy of information on the FDIC enforcement decisions and orders website.”

The OIG report said that the FDIC “concurred with 7 of 10 report recommendations, and plans to complete corrective actions for these recommendations by May 31, 2022.” There were disagreements in other areas, however.