IdentityMind breaks down the Department of Justice's March 2015 resolution to explore the actual charges, lessons from the enforcement, and how you can reinforce your risk program to avoid similar scenarios. For more information, visit us at www.IdentityMindGlobal.com, or email us directly at evangelist@identitymind.com

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Iden'tyMind
Global
2015
3 Lessons from the
Department of Justice’s
March 2015 Settlement
…and how to apply them with IdentityMind

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Iden'tyMind
Global
2015
3 Lessons from the Department of
Justice’s March 2015 Settlement
In early 2015, the Department of Justice reached a
$4.9M settlement
with a California-based bank.
The civil and criminal resolution followed the Department’s investigation into
consumer fraud schemes facilitated by the Bank, in which a third-party payment
processor, referred to as “PSP X”, processed transactions for fraudulent merchants
by withdrawing money from consumer’s bank accounts without authorization.
We’ve broken down the resolution to explore the actual charges, lessons
from the enforcement, and how you can reinforce your risk program to avoid
similar scenarios.

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Iden'tyMind
Global
2015
Understanding the Department of
Justice’s $4.9M Settlement
“2014 was marked by record-setting fines and
precedent-setting criminal prosecutions and
enforcement actions against financial
institutions for violations of BSA/AML and
sanctions laws.”
- 2014 Year-End Review of BSA/AML and Sanctions Developments,
Harvard Law
With BSA penalties increasing, it’s crucial to analyze recent enforcement actions
to understand what regulators are looking for, and assess the effectiveness of
your own program is comparison with recent enforcement trends.
$0
$2,000,000,000
$4,000,000,000
$6,000,000,000
$8,000,000,000
$10,000,000,000
$12,000,000,000
0
2
4
6
8
10
12
14
2010
2011
2012
2013
2014
BSA/AML
Enforcements
by
Year
Total
Number
of
BSA/AML
Penal'es
Total
Amount

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Iden'tyMind
Global
2015
Summary
The March 2015
Enforcement
• What Happened?
• Third-party PSP processed
transactions for fraudulent
merchants
• The Civil Complaint:
• Knowingly facilitated
consumer fraud
• The Criminal Charges
• Violation of the Bank
Secrecy Act
Lessons From the
Enforcement
• Identify warning signs
• File SARs and
terminate suspicious
accounts
• Integrate fraud
prevention and BSA
compliance
Reinforcing Your
Program with
IdentityMind
• Closely monitor your
clients
• Easily file SARs and
close accounts
• Integrate risk
management across
fraud prevention and
regulatory compliance
Learn More

5. ©
Iden'tyMind
Global
2015
The Enforcement - What Happened?
From 2011 - 2013:
– “PSP X” processed transactions for fraudulent
merchants, withdrawing funds from consumer
bank accounts without authorization.
– The enforcement specifically mentioned two
merchants:
• A fraudulent telemarketing company
• A company charging for fraudulent payday loan
referral fees
– The Bank allowed “PSP X” to process millions of
dollars of unauthorized withdrawals
– The Bank did not terminate the account until the
Department of Justice sought an emergency
injunction.

6. ©
Iden'tyMind
Global
2015
The Settlement
In early 2015, The Department of Justice reached a civil and criminal resolution
with the Bank following an investigation into consumer fraud schemes.
The Bank, “knowingly facilitated consumer fraud by
permitting the payment processor to make millions of dollars
of unauthorized withdrawals from consumer bank accounts on
behalf of fraudulent merchants.”
- Department of Justice, Press Release 2015
The Resolution consisted of two parts:
Civil Complaint:
Knowingly
facilitated
consumer
fraud
Criminal Charges:
Viola'on
of
the
Bank
Secrecy
Act,
specifically
regarding
their
rela'onship
with
a
third-­‐party
payment
processor.

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Iden'tyMind
Global
2015
The Charges:
The Civil Complaint
• The DOJ’s civil complaint alleged that the Bank ignored clear warning signs indicating
“PSP X” and it’s merchants were defrauding consumers.
• This follows a recent trend in which the DOJ has used fraudulent activity as the basis for
BSA enforcement actions.
“In most recent cases, the DOJ has invoked
FIRREA, usually in conjunction with the
False Claims Act, to seek multimillion or
multibillion-dollar penalties against some of
the largest financial institutions in the United
States.”
- Jones Day, “ FIRREA Civil Money Penalties: The
Government’s Newfound Weapon against Financial
Fraud”
What is FIRREA, Section 951
FIRREA, Section 951 is the Civil Money Penalty Provision of the Financial
Institutions Reform, Recovery and Enforcement Act of 1989
• Enacted more than 20 years ago in the wake of the savings &
loan crisis
• Recently resurrected by the DOJ as a tool to combat financial
fraud, and residential mortgage fraud.
• Unlike a criminal prosecution, where the DOJ must prove guilt,
under FIRREA, the DOJ must only prove that a defendant
committed one of the predicate offenses.

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Iden'tyMind
Global
2015
The Charges:
The Criminal Charges
The Department of Justice charged the Bank with willful violation of the Bank
Secrecy Act for it’s failure to file Suspicious Activity Reports (SARs) regarding the
actions of the third-party payment processor.
Despite complaints & inquiries from other banks,
• The Bank did not terminate the account
• Did not file any Suspicious Activity Reports
• Simply blocked transactions to banks who
complained, while continuing to allow
transactions elsewhere.
“[The Bank] not only failed to
comply with its statutory
obligation to notify the
government of suspicious
illegal activity involving
consumer fraud, the bank also
allowed fraudulent activity to
continue through its accounts,
to the detriment of the
American consumer.”
- Gary Barksdale, Inspector in
Charge, USPIS.

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Iden'tyMind
Global
2015
Lessons from the Enforcement
1. Identify Warning Signs
2. File SARs, and Terminate Suspicious
Accounts
3. Integrate Fraud Prevention and BSA
Compliance
The Bank’s fine and criminal charges seem easily avoidable. However, similar
situations can occur without proper oversight.

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Iden'tyMind
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2015
Lesson 1: Identify Warning Signs
Problem: Missed Red Flags
Complaints & inquiries from other banks
• The Bank blocked transactions to other
banks that complained, rather than
investigating the account.
High rates of rejected transactions
• The Bank should have been deeply
concerned with high rates of rejected
transactions long before they reached
50%.
Red flags listed by the Department of Justice included:

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Iden'tyMind
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2015
Lesson 1: Identify Warning Signs
Solution: Closely Monitor Your Clients
Configurable rules include:
• Limits on rates of rejected transactions across
the portfolio, or by merchant
• Alerts based on potentially suspicious
transactions - such as the widespread charges
by “PSP X”
• Ability to segment merchants by risk, and set
rules according to the risk level of the group.
If regulators ask for additional information, our
platform provides you with reports demonstrating
your active monitoring, and risk levels across the
portfolio.
Using IdentityMind, the Bank could have easily implemented
automated alerts based on rates or spikes in rejected/declined
transactions, as well as a variety of other factors.
IdentityMind Features

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Iden'tyMind
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2015
Lesson 2: File SARs, and Terminate Suspicious Accounts
Problem: Failure To File SARs, Or Terminate Accounts
Rather than closing the accounts and filing
suspicious activity reports, the bank
blocked transactions to banks that
complained, and maintained the accounts
until the Department of Justice notified the
Bank it intended to seek an emergency
injunction.
The DOJ cited the Bank’s failure to file SARs following
complaints from other banks, and their failure to close the
accounts, as willing violation of the Bank Secrecy Act.

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Iden'tyMind
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2015
Lesson 2: File SARs, and Terminate Suspicious Accounts
Solution: Easily File SARs and Close Suspicious Accounts
Using the IdentityMind platform, the bank could have easily filed
Suspicious Activity Reports with information straight from the
system’s automated alerts.
Pre-populated SAR fields with information from
alerts including:
• Transaction
• Name
• Business Name
• IP Address
• Location
• More
The easier it is for analysts to file Suspicious
Activity Reports, the easier it is to protect your
institution. SARs demonstrate your institution is
not willingly aiding in suspicious or fraudulent
activity.
IdentityMind Features

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Iden'tyMind
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2015
Lesson 3: Integrate Fraud Prevention and BSA Compliance
Problem: Divided Fraud Prevention and Compliance
The Department of Justice has invoked FIRREA in a number of
large enforcements, adding BSA Violations as secondary
charges.
Since Fraud Prevention and
Regulatory Compliance programs
operated separately, relevant
information about fraudulent
activity was not considered by the
compliance team.

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Iden'tyMind
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2015
• IdentityMind combines risk applications to
provide unprecedented control in designing and
operationalizing compliance programs tailored to
the needs of your institution.
• Risk Information is leveraged across all
applications- payment fraud, account fraud,
Know Your Customer, sanctions screening, and
AML/BSA compliance.
• Reinforce your compliance program with fraud
limits, alerts, and rules according to recent
enforcement trends, or adapt your program to
new risk scenarios in real-time.
Lesson 3: Integrate Fraud Prevention and BSA Compliance
Solution: Integrate Risk Management across Fraud
Prevention and Regulatory Compliance
1a. Risk: Alert when users
of a rogue merchant are
being defrauded
1b. AML: Use this
information to track the
attributes of these users to
analyze financial crime.
2a. AML: Identify suspicious
users and transactions
2b. Risk: Monitor attributes
of suspicious users and
make sure they aren't
involved in fraud scenarios.
Using IdentityMind, risk activity would have been shared across functions, allowing the
Bank’s Fraud Prevention and Compliance teams to operate in sync, recognizing and
mitigating issues across payment fraud, account fraud, sanctions screening, regulatory
compliance, and more, long before it became a problem.
IdentityMind Features

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Iden'tyMind
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2015
The IdentityMind Platform
• Our eDNA™ technology builds sophisticated
payment reputations, using shared information from
our diverse network of Financial Institutions, MSB’s,
PSPs, Merchants, and more. This information is
portrayed visually to illustrate links within the system.
• eDNA™ transcends individual institutions to create a
collaborative risk environment while protecting the
privacy of all individuals involved.
IdentityMind combines risk management across applications to provide leading
professionals with the capabilities they need to create cutting edge compliance programs.
Our platform also provides further visibility with our Entity Graph technology,
revealing connections between entities and transactions that would otherwise be
invisible.
When fraudulent transactions and suspicious activity are clearly linked to their sources, it
becomes easy for a bank to investigate the situation further.

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Iden'tyMind
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2015
With IdentityMind, “PSP X’s” actions would have been obvious to the
Bank much earlier on.
Our platform combines Fraud Prevention, AML Compliance, and Merchant
Risk Monitoring to provide the complete solution banks need to comply with
recent enforcement trends.
For more information on how our solution can serve the needs of your
institution, contact us today:
Request a Personalized Demo today
Automated Merchant
Risk Monitoring
Integrated AML &
Fraud Prevention
eDNA™ & Entity
Graph Analysis
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