U.S. Bancorp to Pay Penalty of $613M for Money Laundering

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U.S. BancorpUSB has agreed to pay about $613 million in penalty to the U.S. regulators for deliberate violations of the Bank Secrecy Act by its subsidiary, U.S. Bank National Association.

Willful Violations

The bank has been slapped with charges of failing to put together proper anti-money laundering (AML) control programs along with intentionally not reporting suspicious activities to the authorities.

For a period of nearly six years (ended 2014), U.S. Bancorp was found of using weak AML measures. The bank lowered the number of suspicious activities that could be identified by its monitoring systems due to limited number of employees present to track them.

Also, the bank had hidden this fact from the Office of the Comptroller of the Currency (OCC). Despite knowledge of these improper practices and repeated warnings from the reviewers of staff levels to be "stretched dangerously thin", U.S. Bancorp chose to conceal facts from the minutes of internal meetings.

Further, the regulators also noted the bank's failure to properly track Western Union transactions made by non-customers at its branches. Suspicious transactions were allowed to go uninvestigated despite employees raising concerns.

Second allegation on the bank was keeping the wrongdoings of Scott Tucker, a former professional race car driver, from the authorities until it received a subpoena from the U.S. attorney in Manhattan in 2013.

The bank allowed Tucker to use accounts under tribal names to conduct fraudulent payday lending scheme. Since 2008, these sham companies had lent millions of loans to the customers and generated profits that he spent to fulfil his lavish needs.

In 2011, investigators reported about these misdoings to which the bank responded by closing Tucker's accounts in the names of the tribal companies but refrained from filing a suspicious report. Moreover, they allowed him to operate through non-tribal accounts letting millions from illegal payday business schemes to flow in.

Penalties Imposed

U.S. Bancorp has signed a two-year deferred prosecution agreement with the U.S. Attorney's Office in the Southern District of New York and has agreed to pay a fine of $453 million.

The bank is also liable to pay $75 million to the OCC, $70 million to Financial Crimes Enforcement Network and the Federal Reserve will be paid $15 million.

Apart from penalty, the bank will continue to undertake proper modifications of its AML program, only after which charges will be dismissed by the government.

Our Take

Though this settlement might impact U.S. Bancorp's financials to an extent, it still remains well poised for growth on the back of its solid business model and diverse revenue streams.

Also, such incidents help instill investors' confidence in regulating bodies and keep banks from engaging in illegal activities.

Shares of U.S. Bancorp have gained 6.5% over the past six months, underperforming 20.5% rally for the industry it belongs to.

The stock carries a Zacks Rank #3 (Hold). You can see .

The stock carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Some better-ranked stocks in the same space are Citigroup C , State Street Corporation STT and The PNC Financial Services Group PNC . All these stocks carry a Zacks Rank #2 (Buy).

The Zacks Consensus Estimate for Citigroup has increased 3.1% for the current year, in the last 30 days. The company's share price has increased 28.1% in the past year.

State Street has witnessed 4.1% upward earnings estimate revision for 2018, in the last 30 days. Its share price has risen 28.8% in the past year.

PNC Financial's shares have gained 26% in a year and its earnings estimates for 2018 have moved up nearly 1% in the last 30 days.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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