Wells Fargo Commits to Regulator Agreement to Fix Financial-Crime Controls

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Wells Fargo To Pay $3 Billion In Penalties

Wells Fargo is to pay $3 billion in penalties and commit to a sweeping overhaul of its financial-crime controls as part of an agreement with three federal regulators over longstanding failures that allowed criminals to launder money.

The settlement with the Justice Department, the Federal Reserve, and the Office of the Comptroller of the Currency (OCC) includes a $2 billion civil penalty, $500 million in criminal fines, and $500 million in customer remediation.

Years of Investigation Uncover Financial Crime Failures

The agreement resolves investigations going back several years into the bank's repeated failures to follow anti-money laundering and other financial-crime prevention rules.

The problems stemmed from the bank's rapid expansion through a series of acquisitions, which brought together different systems and cultures without adequate oversight.

OCC: Wells Fargo's Compliance Failures "Systemic"

According to the OCC, the bank's compliance failures were "systemic" and "widespread," and the bank "failed to maintain a comprehensive BSA/AML compliance program to guard against financial crime risk."

The OCC also found that Wells Fargo failed to conduct adequate due diligence on customers, failed to file timely Suspicious Activity Reports (SARs), and failed to adequately monitor transactions for suspicious activity.

Wells Fargo Claimed to Have Fixed Issues in 2017

Wells Fargo admitted to the violations and said it had taken steps to fix the problems, including hiring more compliance staff and investing in new technology.

However, the regulators found that the bank's efforts had not been sufficient to address the systemic problems.

Regulators Demand Overhaul of Financial Crime Controls

As part of the settlement, Wells Fargo has agreed to overhaul its financial-crime controls.

The bank will be required to hire an independent consultant to assess its compliance program and make recommendations for improvement.

Justice Department: Bank Must Create More Robust Program

The Justice Department said the new program must be "more robust and comprehensive" than the bank's previous efforts.

It must also be "independently assessed and tested" to ensure its effectiveness.

Conclusion: A Federal Watchdog To Oversee Wells Fargo

The agreement also requires Wells Fargo to appoint an independent compliance monitor to oversee the bank's implementation of the new controls.

The monitor will report regularly to the regulators on the bank's progress.

The settlement is the latest in a series of enforcement actions against Wells Fargo over its financial-crime controls.

It remains to be seen whether the new agreement will be effective in addressing the bank's long-standing problems.

However, the size of the penalties and the scope of the required reforms suggest that the regulators are serious about holding Wells Fargo accountable for its failures.