On July 9, the New York Department of Financial Services (NYDFS), joined by regulators from five other states, entered into a multistate settlement with a money transmitter headquartered in New York. The $4.2 million consent order resolves allegations arising from a multistate examination conducted by the Conference of State Bank Supervisors (CSBS) and the Money Transmitter Regulators Association (MTRA) citing alleged violations of the Bank Secrecy Act (BSA), FinCEN regulations, and the CFPB’s Remittance Transfer Rule.

The multistate examination, covering activity from July 2022 to September 2023, found significant compliance deficiencies in the company’s anti-money laundering (AML) and remittance compliance programs. More specifically, the allegations in the consent order include:

• Inadequate AML program oversight. Examiners found the company failed to conduct independent reviews of its AML program with sufficient frequency, despite its growing customer base and operational complexity.
• Deficient suspicious activity monitoring. The company allegedly failed to timely file Suspicious Activity Reports (SARs) and did not sufficiently investigate potentially suspicious customer behavior.
• Transaction monitoring data integrity issues. Weak internal controls were alleged to have compromised the accuracy and completeness of customer data used for compliance reporting.
• Remittance Rule violations. The multistate team identified violations of the CFPB’s Remittance Transfer Rule, though specific provisions were not detailed in the consent order.
• Failure to remediate prior findings. Examiners cited the company’s delay in addressing previously identified compliance issues from past examinations and audits.

The order requires the company to undertake a two-year lookback of certain closed accounts for SAR filing purposes, strengthen due diligence procedures, and engage an independent third party to evaluate and test the company’s AML program. Ongoing quarterly progress reports must also be submitted to the participating regulators.

Putting It Into Practice: This enforcement action highlights how state regulators are increasingly stepping in to fill the void left by the CFPB’s ongoing reduction in regulatory activity (previously discussed here). The CFPB’s earlier settlement with the company (previously discussed here), which included a lower monetary penalty despite similar allegations, demonstrates how state agencies are now taking a more assertive role in enforcing consumer protection laws. Money transmitters and other nonbank financial institutions should take this as a cue to closely review the adequacy of their AML and remittance compliance programs.