Earlier this year, FinCEN assessed a $1.5 million civil money penalty against South Dakota-chartered Kingdom Trust Company for willful violations of the Bank Secrecy Act.  This was FinCEN’s first enforcement action against a trust company, and the South Dakota Division of Banking subsequently required all South Dakota-chartered trust companies to provide detailed responses as to BSA compliance.  While the business line at issue in the Kingdom Trust Consent Order was uncommon, the Consent Order and the Division’s issuance provide guidance for all financial institutions as to the regulatory expectations regarding suspicious activity monitoring and related SAR filing responsibilities.

Kingdom Trust Company primarily served as a qualified custodian for self-directed IRAs and investment advisors.  In 2014, Kingdom Trust expanded into providing payment and account services to foreign broker-dealers and money service businesses located in high-risk Latin American jurisdictions, exposing the company to elevated money laundering risks that its BSA/AML program was unequipped to handle.  Kingdom Trust processed at least $4 billion in payments for foreign customers from 2016 to 2021.  The Consent Order states that Kingdom Trust materially harmed FinCEN’s mission to safeguard the U.S. financial systems from illicit use by opening Kingdom Trust’s doors to a high-risk business that it did not understand and failing to identify and report transactions with clear indicia of suspicion, thus allowing illicit actors to use their accounts to engage in activity related to money laundering and securities fraud schemes.

The Kingdom Trust Consent Order highlights the need for rigorous assessment of BSA/AML programs by all financial institutions.  Key actions financial institutions should consider taking include:

  • Conduct regular reviews to identify high-risk customers, business lines, and jurisdictions that require enhanced due diligence. Vet foreign customers and those from unknown referring parties.
  • Evaluate AML staffing, transaction monitoring systems, audits, training, and resources. Ensure they are appropriate based on risk, size, volume, and business lines. Consider automated monitoring if not already in place.
  • Establish and document detailed red flag criteria and required contextual information (e.g., source of funds).  Train staff at all levels on identifying red flags.
  • Assess the adequacy of past SAR filing rates based on risk profile and transaction volumes.
  • Take prompt action if an account is closed due to AML concerns.  Review activity and file SARs.

The Kingdom Trust Consent Order shows the importance of both a well-developed BSA/AML program and the continued assessment of such program.  Davenport Evans attorneys can assist in BSA compliance, including AML risk reviews, red flag development, staff training, and SAR filings.

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Davenport, Evans, Hurwitz & Smith, LLP, located in Sioux Falls, South Dakota, is one of the State’s largest law firms. The firm’s attorneys provide business and litigation counsel to individuals and corporate clients in a variety of practice areas. For more information about Davenport Evans, visit www.dehs.com.