Banks Cite BSA, Money Laundering Risk in Closing Credit Union Correspondent Accounts
As many as 30 credit unions in West Virginia and Ohio have shifted more business to their corporates after a regional and national bank terminated their correspondent account relationships last month.
The $1.4 billion Volunteer Corporate CU and the $3.7 billion Corporate One FCU both reported the closed accounts, and in both cases said members reported the banks cited Bank Secrecy Act and money laundering risk for the decision.
Charlie Thomas, VolCorp’s senior vice president of West Virginia operations, said the Nashville, Tenn.-based corporate first became aware of the terminated correspondent relationships a few weeks ago. He said the two banks were the Columbus, Ohio-based Huntington Bank and New York-based JPMorgan Chase Bank.
Corporate One FCU, also based in Columbus, has heard the same thing from members in Ohio, said Vice President of Marketing Paul Hixon. He said the corporate didn’t keep count of affected members, but said “several” had contacted Corporate One.
Like in West Virginia, the affected Ohio credit unions had banked with Huntington and Chase, and Hixon said another member in Florida reported receiving a similar letter from Bank of America.
Thomas said a letter he’d seen from Huntington to a credit union said the decision to terminate the business relationship was the result of regulatory requirements, “some of which may be new or been amended since the credit union opened its account.” The decision reflected a change in bank-wide strategy, and was not a reflection on the credit union, the letter added.
Hixon reported similar language communicated to Ohio credit unions and added, “Something clearly happened, that all these banks have closed these accounts at the same time.”
Both men reported some members transferred their correspondent business to their respective corporate, while other credit unions set up accounts with large credit unions, or found another bank provider.
The account closures appear to be limited to West Virginia and Ohio, according to CUNA Senior Vice President Mary Dunn.
Maureen Brown, Huntington Bank’s public relations director, said this week that she had investigated the closed account reports but could not comment on customer relationships per bank policy. Calls to Chase were not returned.
The Federal Reserve Board, which shares BSA regulator duties with the Office of Comptroller of the Currency, issued a consent order against JPMorgan Chase in February that requires the bank to take corrective action to improve its internal procedures for managing BSA and money laundering compliance. There have been no consent orders issued against Huntington Bank.
The Fed said it would not comment on whether the two banks had been directed to close the accounts.
According to testimony from Federal Reserve Board Governor Jerome Powell, delivered to the Senate Banking Committee during a hearing March 7, the Fed takes a risk-based approach to BSA and OFAC reviews, and gives exam supervisors “the flexibility to apply the appropriate level of scrutiny to higher-risk business lines.”
Powell also said the Fed reinforces its supervisory program by conducting targeted examinations of financial institutions that show signs of being vulnerable to illicit financing. Banks are selected for such examinations based on, among other things, analysis of the institution's payments activity, suspicious activity reports, currency transaction reports and law enforcement leads.