EagleBank to Pay More Than $9.7 Million After DOJ Finds Decade of AML Failures

Key Takeaways

• AML Program Failures: EagleBank admitted it willfully failed to maintain a Bank Secrecy Act-compliant AML/CFT program between 2010 and 2021.
• Compliance Overrides: The Justice Department said senior executives repeatedly overrode compliance personnel who sought to end a decade-long check-kiting scheme.
• Substantial Losses: The fraud resulted in nearly $6.3 million in losses to another financial institution.
• $9.7 Million Resolution: EagleBank agreed to pay more than $9.7 million, including a $9.06 million criminal fine and $736,515 in forfeiture.

Deep Dive

The U.S. Department of Justice recently announced a settlement with EagleBank, which agreed to pay more than $9.7 million after admitting it willfully failed to maintain an anti-money laundering and countering the financing of terrorism (AML/CFT) program required under the Bank Secrecy Act. The resolution comes in the form of a non-prosecution agreement covering conduct that stretched from 2010 through 2021.

According to the Justice Department, the Maryland-based community bank knowingly allowed a father and son to operate a check-kiting scheme through EagleBank accounts for more than a decade, even as members of the bank's compliance function repeatedly sought to shut the accounts down. The department said those efforts were overridden by senior executives.

Check kiting is neither sophisticated nor new. It relies on exploiting the delay between when a check is deposited and when the originating bank confirms that sufficient funds actually exist. By continually writing checks against accounts with insufficient balances and moving them among financial institutions, fraudsters can create the appearance of available funds while masking growing overdrafts.

According to the Justice Department, EagleBank admitted that it allowed exactly that scheme to continue for more than ten years. The father involved in the scheme was a friend and business partner of EagleBank's former chairman and chief executive officer, who resigned in 2019. During the life of the fraud, senior bank executives repeatedly overrode compliance personnel who attempted to close the accounts and stop the activity, the department said.

The scheme ultimately caused nearly $6.3 million in losses to another financial institution. That's important because it shifts the story beyond a deficient compliance program. The Justice Department is not describing an organization that failed to identify suspicious activity. It is describing one that identified it, debated it and chose not to act.

Governance Under Scrutiny

The Justice Department's allegations go well beyond technical deficiencies in an AML program. Under the non-prosecution agreement, EagleBank admitted that between 2010 and 2021 it willfully failed to establish an AML/CFT program as required by the Bank Secrecy Act.

Assistant Attorney General A. Tysen Duva said financial institutions are expected to serve as the first line of defense against financial crime, warning that banks become "gateways" for criminal activity when they knowingly allow unlawful conduct to persist.

U.S. Attorney Brian D. Miller for the Middle District of Pennsylvania said permitting fraud to continue inside a financial institution is unacceptable, while FBI Assistant Director Heith Janke said the bank's failures weakened the financial system and enabled criminal activity. The statements send a consistent message. The department is treating governance decisions, not merely compliance deficiencies, as the source of the misconduct.

Under the agreement, EagleBank will pay a $9,057,821.62 criminal fine and forfeit $736,515, representing overdraft fee revenue earned from the accounts involved in the scheme. The bank also agreed to strengthen its AML/CFT program, cooperate with the Justice Department's ongoing investigation and report any future violations of federal criminal law.

The GRC Report is your premier destination for the latest in governance, risk, and compliance news. As your reliable source for comprehensive coverage, we ensure you stay informed and ready to navigate the dynamic landscape of GRC. Beyond being a news source, the GRC Report represents a thriving community of professionals who, like you, are dedicated to GRC excellence. Explore our insightful articles and breaking news, and actively participate in the conversation to enhance your GRC journey.