Gibraltar hit with regulatory action for secrecy act and anti-money laundering violations

Feb 25, 2016   

By Nina Lincoff
February 25, 2016

Coral Gables-based Gibraltar Private Bank & Trust has been hit with two separate penalties related to Bank Secrecy Act and anti-money laundering compliance, regulators announced Thursday.

The announcements follow litigation earlier this week against the bank, which has $1.6 billion in assets as of Dec. 31.

The penalties are the latest incidents linked to Scott Rothstein’s $1.2 billion Ponzi scheme. Rothstein, an investor in Gibraltar, is serving 50 years behind bars.

The Financial Crimes Enforcement Network said that the “grounds exist” for a $4 million civil penalty against Gibraltar for “willful anti-money laundering compliance violations.” The bank admitted to facts outlined by FinCEN, according to the regulatory document.

Also on Thursday, the Office of the Comptroller of the Currency announced a $2.5 million civil penalty against Gibraltar for BSA violations, at the same time releasing the bank from its past consent orders. FinCEN cites the OCC’s previous findings that Gibraltar had violated BSA requirements following regulatory orders demanding that it improve its programs. Payment of $2.5 million to the OCC and $1.5 million to FINCEN will satisfy the assessment.

Gibraltar Chairman and CEO Adolfo Henriques told the Business Journal that the bank is pleased that the penalty resolves the OCC’s consent order.

FinCEN found that Gibraltar failed to implement adequate BSA and AML compliance procedures. As a result of these failures, the bank missed red flags related to Rothstein’s account including that Rothstein used his account for millions of dollars of fund transfers in large round-dollar amounts, which is indicative of a Ponzi scheme, according to FinCEN.

Gibraltar “willfully violated the BSA’s program, reporting and record-keeping requirements from February 2008 through October 2014,” according to FinCEN.

The bank failed to implement and maintain a sufficient AML program, develop an adequate customer identification program, etc., according to the regulator. Those deficiencies ultimately resulted in the failure to file 120 red-flag reports, or suspicious activity reports (SARs), related to almost $558 million in transactions.

Part of Gibraltar’s failure was due to a large volume of alerts generated by the bank’s compliance system, which meant the bank’s BSA analysts were unable to timely or adequately review all of the alerts, FinCEN said. Between August 2013 and late July 2014, Gibraltar failed to review and process almost 60 percent of its monthly alerts, it said. The regulator also found that Gibraltar closed down alerts which should have been escalated and resulted in the filing of a SAR.

“Gibraltar allowed the investigation to languish and did not file a suspicious activity report on Rothstein-related activities until after information regarding Rothstein’s activities appeared in the media,” according to FinCEN.

Gibraltar agreed that none of its attorneys, agents, partners, directors, or any person authorized to speak on the bank’s behalf make a public comment contradicting FinCEN’s assessment.

“All of these deficiencies allowed Scott Rothstein – who appeared on paper to run a successful law firm – to use the bank for purposes of operating a massive Ponzi scheme,” said Andrew Ittleman, founder and partner of Miami-based Fuerst Ittleman David & Joseph. “This sort of ‘paper’ program is all too common among regulated businesses, but as this case shows, the government is taking increasingly public steps to weed them out and bring them into actual compliance.”

The other half of Gibraltar’s Thursday regulatory discipline came from the OCC, which found that the bank failed to adequately ensure the timely filing of SAR reports after the regulator ordered it to improve compliance in 2010 and 2011.

These actions followed recent news that former Gibraltar CEO Steven Hayworthis suing the bank for $40 million in damages for breach of employment agreement and fraud .

In April 2015, Gibraltar disclosed it was under investigation from the U.S. Attorney’s Office and the Department of Justice’s Asset Forfeiture and Money Laundering Section for BSA and AML compliance.

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