The Federal Reserve, in conjunction with the New York Department of Financial Services, has imposed a penalty of $29.5 million on Metropolitan Commercial Bank (MCB) for multiple violations of the Bank Secrecy Act.
Digital Prepaid Visa Card Operations
Authorities have revealed that MCB’s shortcomings in implementing adequate identity verification procedures resulted in the exploitation of the MovoCash digital prepaid visa card program by criminal elements, leading to the misdirection of a sum totaling $300 million.
In a press release issued on 19 October 2023,
“In 2020, Metropolitan opened prepaid card accounts for illicit actors who subsequently used the accounts to collect illegally-obtained state unemployment insurance benefits. By opening prepaid card accounts through a third-party program manager without having adequate procedures for verifying each applicant’s true identity, Metropolitan violated customer identification rules of the Bank Secrecy Act.”
The New York Department of Financial Services has emphasised that fraudulent actors, utilising false credentials, successfully diverted considerable amounts of direct deposit payroll payments and government benefits through the MovoCash program.
Despite the observation of a surge in fraudulent activities, MCB’s failure to promptly address the issue allowed the fraudulent behavior to escalate unchecked.
This inaction eventually led to the misdirection of over $300 million in pandemic unemployment benefits through the MovoCash accounts associated with fraudulent actors.
New York’s Superintendent of Financial Service, Adrienne A. Harris, said:
“During the pandemic, scammers used sophisticated tactics to take advantage of vulnerable New Yorkers at a time when institutions should have been most vigilant. MCB failed to prevent a massive, ongoing fraud in the MovoCash prepaid card program, allowing bad actors to abuse the financial system.”
Regulatory Directive for Comprehensive Reforms
In response to these violations, the Federal Reserve is now mandating Metropolitan Commercial Bank to undertake a comprehensive overhaul of its customer identification, customer due diligence, and third-party risk management protocols.
Metropolitan Commercial Bank, with a substantial total asset value of $6.683 billion and a notable presence across New York via its network of seven branches, faces the significant repercussions of its failure to maintain robust oversight and compliance measures, as required under the Bank Secrecy Act.