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Discover Financial Services disclosed Thursday that it will enhance its company-wide anti-money laundering procedures under an agreement it signed with the Federal Reserve Bank of Chicago. The agreement does not call for fines.
The pact follows by 11 months a consent order that Discover’s Delaware-based bank subsidiary, Discover Bank, struck with the Federal Deposit Insurance Corp. Riverwoods, Ill.-based Discover Financial Services is a bank holding company whose products besides credit cards include student loans, home loans, and savings and checking accounts. The company’s payments operations include the Pulse debit network and Diners Club International.
A Discover spokesperson declined to comment on the new agreement.
The May 26 agreement, disclosed in a regulatory filing, does not give details about exactly what was wrong with Discover’s earlier anti-money laundering operations or its compliance with the federal Bank Secrecy Act, the 1970 law that requires financial institutions to assist the government in detecting and preventing money laundering. “The most recent inspection of DFS conducted by the Federal Reserve Bank of Chicago identified deficiencies in DFS’s firm-wide compliance program with respect to compliance with the BSA/AML requirements applicable to the various DFS legal entities,” the filing says.
“AML compliance is 60% art and 40% science, so even a well-meaning organization could have an interpretation that differs from a state or federal regulator,” Adam Atlas, a Montreal-based attorney who works with U.S. and Canadian payments clients, tells Digital Transactions News by email. “It's hard to tell where improvements were required.”
The agreement calls for Discover’s board of directors to submit a plan within 60 days to the Chicago Fed on how the board will strengthen its oversight of company-wide risk-management procedures. A month after that, Discover is to submit specific plans for improving compliance with the BSA and AML regulations.
Discover is hardly the first bank or payments company targeted by the feds to improve its anti-money laundering programs as the government contends with the rise of international terrorism and illicit drug operations. Others that recently entered into agreements or settlements with the government include virtual-currency platform provider Ripple Labs Inc. and Miami-based Espirito Santo Bank. JPMorgan Chase and Co.’s retail and card banks signed a consent order with the U.S. Treasury Department’s Office of the Comptroller of the Currency in January 2013.
