The U.S. Treasury’s Financial Crimes Enforcement Network, or FinCEN, said Monday that Carson, CA-based Merchants Bank of California, once seen as a financial lifeline for Somalis, would pay $7 million for failure to comply with AML rules.

The bank specialized in providing banking services for check cashers and money transmitters; though it provided those services without adequately assessing the money-laundering risks - by failing to conduct due diligence on foreign correspondent accounts, and failing to detect or report suspicious activity, FinCEN said.

According to FinCEN’s complaint, … many of the transactions were conducted on behalf of money-services businesses owned or managed by insiders who encouraged staff to process them without question, or face potential dismissal or retaliation.

• Bank insiders directly interfered with compliance staff’s attempts to investigate suspicious activity related to insider-owned accounts.
• Activity in those accounts went unreported “for many years.”
• Merchants banked customers located in several jurisdictions considered to be high risk, but the bank didn’t identify them as foreign correspondent customers, and therefore didn’t implement the required enhanced due-diligence program.
• The bank’s failures allowed billions of dollars to flow through the U.S. financial system without effective monitoring.

A $1 million penalty was also assessed on the bank by the office of the Comptroller of the Currency. FinCEN said the OCC penalty would be credited toward satisfying its measures against the bank.