Capital One Fined Millions for Ineffective Money-Laundering Protections

The U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued a $390 million penalty against Capital One (COF) last week, saying the financial powerhouse admitted to “willfully failing to implement and maintain” an effective anti-money laundering program.

What Are the Details?

The FinCEN assessment, announced on Jan. 15, stems from a now-defunct, small portfolio of check-cashing businesses that Capital One inherited as part of an acquisition and subsequently exited in 2014. From at least 2008 through 2014, Capital One offered banking services to a group of between 90 and 150 check cashers, mostly operating out of in storefronts in New York and New Jersey. 

FinCEN says Capital One was aware of warnings by regulators, criminal charges against some of the customers, and internal assessments that ranked most of the customers in the top 100 of the bank’s highest-risk customers for money laundering. Despite this information, the agency says, Capital One often failed to detect and report suspicious activity by the check cashers. 

The bank admitted it failed to file thousands of suspicious activity reports and lapsed on filing currency transaction reports on about 50,000 reportable cash transactions totaling more than $16 billion in cash.

FinCEN Director Kenneth Blanco called the violations “egregious,” adding that Capital One’s failures “puts our nation and our people at risk” by depriving law enforcement of this information.

Blanco further warned that “these kinds of failures by financial institutions, regardless of their size and believed influence, will not be tolerated.”

Matt Kelly, editor of Radical Compliance, an industry newsletter that follows regulatory enforcement against banks, says the action may highlight a fundamental misstep in the internal compliance chain of command. “The big take-away here is that yet again, we see regulators imposing sanction on a bank because it gave too much power to operations executives when dealing with misconduct issues, and not enough to the compliance teams who are supposed to help a bank avoid misconduct,” he says. “We’ve seen several other enforcement actions within the past six months where even though the exact misconduct in question was quite different, the common theme was that the compliance teams didn’t have enough autonomy and power to force the bank to confront difficult issues.” 

Capital One Makes Amends

FinCEN acknowledged that Capital One took significant steps to cooperate with its investigation and fix the problems, which it took into account in sizing the fine. The civil money penalty totaled $390 million, but Capital One was credited $100 million for a penalty that it paid to the Office of the Comptroller of the Currency in 2018 in a related matter. The $390 million fine is less than 0.1 percent of the bank’s roughly $420 billion in assets.

A Capital One spokesperson told Investopedia that the McLean, Va.-based company is pleased to resolve the matter, calling it the last remaining government inquiry into a now-defunct business. The bank was fully reserved for this resolution and has already paid FinCEN’s penalty with no further financial impact.

“Capital One takes its anti-money laundering obligations very seriously,” the spokesperson said. “The bank has invested heavily in the enhancement of its AML program over the past several years under new AML leadership, and has worked closely with regulators and law enforcement to ensure our compliance processes and protocols are robust and thorough.”

As part of these efforts, Capital One self-reported and back-filed more than 50,000 unfiled currency transaction reports (CTRs) and voluntarily performed a look-back on transactions not previously captured.  

Among the nation’s eight largest retail banks, Capital One ranked No. 1 in customer satisfaction, in J.D. Power’s 2020 U.S. National Banking Satisfaction Study. CapitalOne.com is one of the most visited websites in financial services and the company's share of the U.S. credit card market grew to 10.52% in 2019, notes the most recent tally by the Nilson Report.

Despite Capital One's current standing with existing consumers, the impact to the financial services giant's public perception and brand integrity remains to be seen.