USB US Bancorp

By Christina Rexrode 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (February 16, 2018).

U.S. Bancorp was fined $613 million Thursday for what regulators and prosecutors said were shoddy anti-money-laundering controls, a rare regulatory setback for a bank that emerged from the financial crisis relatively unscathed.

The U.S. attorney's office in Manhattan also announced criminal charges against the bank that eventually could be dismissed. The Manhattan U.S. Attorney, Geoffrey Berman, said the bank's poor controls had allowed a former customer, race-car driver Scott Tucker, to launder money from an illegal payday-lending scheme. Mr. Tucker was convicted of fraud last year.

Banks are required to have controls to prevent their systems from being used for illegal purposes, and to report suspicious activity to the government. But the government said that U.S. Bank had operated its program "on the cheap" with inadequate staffing and resources, which caused it to miss red flags of some of its customers' activities, including Mr. Tucker.

Minneapolis-based U.S. Bank is the largest among mid-sized U.S. banks, and one of the largest banks in the country. It has long cultivated a reputation for a cautious, plain-vanilla approach to banking, which has produced years of steady profits. The settlements announced Thursday represent its biggest regulatory fine ever.

Investors took the news in stride. Shares fell 0.4%, or 21 cents, to $55.10. The bank already had disclosed that prosecutors were looking at its relationship with Mr. Tucker. Bank executives said last month that they were expecting a settlement soon, and had set aside $608 million. The bank said Thursday it was fully reserved for the settlements.

Still, U.S. Bank can't put the matter behind it just yet. The bank is still subject to a 2015 consent order by the Office of the Comptroller of the Currency, which flagged the bank for anti-money-laundering deficiencies, and the Federal Reserve issued a similar consent order on Thursday. The OCC order constraints U.S. Bank from buying other banks.

Also, the bank's agreement with the Justice Department includes a so-called deferred prosecution agreement, which requires it to submit to further monitoring. In exchange, the government could in two years seek to dismiss the charges. The bank has already been revamping its money-laundering programs since the OCC's consent order, by hiring staff, upgrading systems and installing a new leadership team.

"We regret and have accepted responsibility for the past deficiencies in our (anti-money-laundering) program," said U.S. Bancorp's Chief Executive Andy Cecere, in a statement. A longtime U.S. Bank executive, he became CEO last year.

The bank agreed to a statement of facts about its conduct.

"This order ... shows that career examiners and prosecutors remain at work," Cowen & Co. analyst Jaret Seiberg wrote in a note to clients.

A customer at the center of the investigation was Mr. Tucker. According to prosecutors, from 2011 to 2013, the bank failed to appropriately report that Mr. Tucker had been using sham bank accounts opened under the names of companies connected to Native American tribes. Prosecutors said the bank disregarded numerous warning signs that Mr. Tucker was using the tribes to hide his ownership of the accounts. For example, prosecutors said, Mr. Tucker used money from the accounts for a vacation home in Aspen and his professional Ferrari racing team.

After news reports of Mr. Tucker's questionable business practices in 2011, U.S. Bank closed the accounts but didn't file a suspicious activity report, prosecutors said. It also left open other accounts belonging to Mr. Tucker.

Prosecutors said the bank dealt with its thin resources in anti-money-laundering compliance by capping the number of transactions subject to review. The bank then concealed that method from the OCC, prosecutors said, with one employee excluding references to limited resources from the minutes of an internal bank meeting.

In all, the bank announced settlements or agreements with the Justice Department, the OCC, the Fed and the U.S. Treasury's Financial Crimes Enforcement Network.

The fines and penalties included a forfeiture of $453 million related to the Justice Department agreement, a $15 million penalty from the Federal Reserve, a $75 million penalty from the OCC, and a $70 million penalty from FinCEN.

Write to Christina Rexrode at christina.rexrode@wsj.com

(END) Dow Jones Newswires

February 16, 2018 02:47 ET (07:47 GMT)

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