"Unmasking USAA FSB's Compliance Breakdown: A Multi-Million Dollar Lesson in AML Failures"

BRIEF INTRO

USAA Federal Savings Bank (USAA FSB) is a division of USAA (United Services Automobile Association), a financial services organization dedicated to serving military members and their families. In 2017, the OCC discovered major issues with USAA FSB's AML program, resulting in substantial penalties.

WHAT WENT WRONG?

Understaffing and Inadequate Training: By early 2021, USAA FSB’s BSA/AML compliance team was severely understaffed, with 62 vacancies, including the head of the Financial Intelligence Unit (FIU). About 76% of roles were filled by undertrained contractors. Management failed to provide training specific to the Bank’s risk profile, focusing instead on policy updates while neglecting crucial areas like account analysis and suspicious activity detection.

Lack of Customer Due Diligence: The bank’s Customer Due Diligence (CDD) policies were flawed, with inadequate account-opening information and an ineffective risk score model. An internal report indicated that no customer had a high-risk score above 5.5, and around 11,500 were deemed low-medium risk. This oversight impaired the bank’s ability to monitor and investigate high-risk accounts.

Unfiled SARs: Due to these AML failures, USAA FSB also failed to timely and accurately file at least 3,873 Suspicious Activity Reports (SARs). Under the Bank Secrecy Act (BSA), banks are required to report suspicious transactions of $5,000 or more, including those involving illegal funds or attempts to evade reporting requirements.

FinCEN imposed a total penalty of $140,000,000 on USAA FSB, which included a $60,000,000 penalty already imposed by the OCC for similar violations. Consequently, USAA FSB was required to pay $80,000,000 to the U.S. Department of the Treasury following the issuance of the Consent Order.

LESSONS LEARNED:

Key learnings for other financial institutions:

1. Compliance Was Non-Negotiable

2. Timely Reporting Was Essential

3. Customer Due Diligence Could Not Be Overlooked

4. Effective Use of Technology

5. Regular Audits and Reviews Were Necessary

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