In hot water for its money laundering activities, credit-card company Capital One fessed up and will pay for its lack of guardrails around suspicious financial transactions.
According to the Financial Crimes Enforcement Network (FinCen), between 2008 and 2014 Capital One basically green-lighted thousands of questionable financial transactions and then failed to submit suspicious activity reports (SARs) as required.
FinCen Director Kenneth Blanco said, “The failures outlined in this enforcement action are egregious, Capital One willfully disregarded its obligations under the law in a high-risk business unit. Information received from financial institutions through the Bank Secrecy Act plays a critical role in protecting our national security, and depriving law enforcement of this information puts our nation and our people at risk. Capital One’s failures did just that.”
While money laundering usually brings to mind shell companies, offshore tax havens, and secretive foreign bank accounts, the tax fraud committed here was conducted old-school style. When Capital One acquired a number of banks in the region in 2008, it created a Check Cashing Group as part of its commercial banking unit. Operating out of storefronts in New Jersey and New York, an estimated 90 to 150 check cashers routinely cashed checks for customers.
By the time the unit was shut down, FinCen reports Capital One was long aware of the risk of money laundering. The bank was warned by regulators and aware many, if not most, of the customers using the service were in the “top 100 of the bank’s highest risk customers for money laundering.” There was also no response by the institution to reports that check cashiers were engaged in suspicious activity.
Although Capital One was aware of criminal charges against Domenick Pucillo, a member of the Genovese crime family, it did not file a SAR. Capital One processed more than 20,000 financial transactions for Mr. Pucillo, valued at around $160 million. The FinCen release notes, “…in May 2019 Pucillo pleaded guilty to conspiring to commit money laundering in connection with loan sharking and illegal gambling proceeds that flowed through his Capital One accounts.”
Properly chastened or not, Capital One quickly agreed to and paid the fine—and received a $100 million credit on that amount because of a payment it made earlier on a similar matter.
It is an old story with a new fine—financial transgression followed by rehabilitation through improved processes and new leadership—and it works. If your company is facing regulatory challenges, talk to a seasoned tax lawyer with experience in individual and corporate criminal tax defense.
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