Richard Pellegrini, known as “Richie” to his friends, was well known at various branches of Pamrapo Bank. A handyman, he – on occasion – did painting and other bank repairs. He even had a few relations working for the branch, including one as a branch manager.
So almost nobody saw anything wrong with giving him a break when he allegedly asked to cash a few checks. According to police, a few of those checks bounced, but nobody realized that the man they knew so well was allegedly in the middle of a check cashing scheme.
“This case is a good example of how disregarding reporting and compliance can turn into a crime.” – Assistant Attorney General Lanny A. Breuer
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But they do now.
Hundreds of checks under the radar
The bank agreed last week to forfeit $5 million to the United States government for failing to report transactions under the federal anti-money laundering laws.
Pamrapo Savings Bank S.L.A., a wholly-owned subsidiary of Pamrapo Bancorp Inc., based in Bayonne, pleaded guilty last week in U.S. District Court for the District of New Jersey to conspiracy to violate the Bank Secrecy Act and has agreed to forfeit $5 million to the United States.
From approximately March 2005 to September 2006, a co-conspirator of Pellegrini’s allegedly cashed approximately 586 checks worth a total of $3.2 million, payable to “cash” at multiple branches of Pamrapo Savings Bank. Each check was under $10,000, thus structured to evade the bank’s obligation to file currency transaction reports (CTR). Ultimately, according to the court documents, Pamrapo Savings Bank willfully failed to file a suspicious activity report (SAR) related to these known and repeated violations of the Bank Secrecy Act.
“This case is a good example of how disregarding reporting and compliance can turn into a crime,” said Assistant Attorney General Lanny A. Breuer of the Criminal Division. “Today’s guilty plea by Pamrapo Savings Bank should remind financial institutions, large and small across the country, of the high price they will pay for ignoring the law.”
Later, the bank sent a statement. “At no time was the safety and soundness of the bank ever in jeopardy as a result of the conduct identified in the criminal information,” said Ted Planzos, the attorney representing Pamrapo. He said, “The government did not allege that the conduct related to narcotics trafficking, terrorism, or money laundering. The majority of the acts cited by the government related to an individual who certain bank employees cashed checks for and that the bank’s compliance program was inadequate to identify these transactions. This failure resulted in the bank not filing required forms with the government.”
Planzos said the bank was not aware of the need to comply at the time of the incidents.
“Bank management at the time the events identified in the information took place, did not appreciate the necessity to maintain appropriate and adequate compliance programs,” he said. “Once the bank became fully aware of the extent of the deficiencies, it spared no expense – spending over $2 million dollars to implement a top of the line compliance program and to ensure full compliance with the law. While the Bank by its plea has acknowledged that it did not meet its obligations under the law and regrets that it did not, the Bank is totally committed to ensuring full compliance with all BSA and AML laws and regulations.”
Manipulated loophole in procedure
Pellegrini, who pleaded guilty two years ago to charges that he was illegally moving money around in a classic check kiting scheme, was able to make use of a loophole in bank procedure by having branch managers authorize the cashing of checks without the usual waiting period.
Pellegrini would use the cash to cover checks from other banks until he could get cash from other places to cover them. He might have stayed ahead of the checks waiting for payment, but the scheme fell through several years ago when he bounced three or four checks in a row, prompting Pamrapo to notify the police.
Unfortunately, bank officials were unaware that the scheme also violated federal law because the transactions were supposed to have been reported to the feds who monitor transactions of more than $10,000 as part of its anti-terrorism activities, and while Pellegrini’s checks were generally under $10,000 each, he frequently cashed more than one a day, which should have been reported.
But bank policy allowed managers to authorize the cashing of checks for certain groups, such as state employees. They were apparently not reported to the federal government, and Pellegrini’s scheme apparently caused the bank to violate the law.
“Pamrapo Savings Bank’s repeated and blatant [alleged] violation of the Bank Secrecy Act shielded criminals and their activities from detection and prosecution by law enforcement. This case should send a strong message to banks that we will vigorously investigate and prosecute financial institutions that provide safe harbor to criminals,” said U.S. Attorney Paul J. Fishman.
Those with knowledge of the situation said the bank’s policies apparently needed to be reviewed and modified to keep anything like this from happening again. They also claim it was not as blatant a violation as federal authorities claim, and that management was just as surprised by the scheme as anybody else, and that this was not a terrorist or money laundering operation.
But federal authorities said the violations showed a significant danger and that the Pellegrini case was only one of a number of suspicious activities, and that the bank had failed to file CTRs and SARs to maintain adequate anti-money laundering programs.
Bank pleaded guilty, was avoiding expense
Pamrapo Savings Bank, in a statement issued to the court, admitted that it violated the Bank Secrecy Act to avoid the expenses associated with compliance, despite federal and state banking regulators telling Pamrapo Savings Bank as early as 2004 that its Bank Secrecy Act and anti-money laundering programs contained serious and systemic deficiencies in critical areas required under the law.
“Specifically, Pamrapo Savings Bank admitted during its guilty plea that it unlawfully
failed to file CTRs and SARs related to approximately $35 million in illegal and suspicious financial transactions, including more than $5 million in structured currency transactions,” according to a public statement issued by the U.S. Attorney’s office. “The bank acknowledged that its willful failure to maintain adequate Bank Secrecy Act and anti-money laundering programs resulted in numerous and repeated violations of the law.”
In addition, Pamrapo Savings Bank admitted that it made false and misleading statements to bank regulators, including at the Office of Thrift Supervision (OTS), to prevent regulatory oversight and enforcement of its deficient Bank Secrecy Act compliance programs.
“Even during an economic downturn, institutions must remain focused on complying with important laws and regulations to ensure that criminals do not use our nation’s financial system for their illicit enterprises,” said OTS Acting Director John E. Bowman. “As this enforcement order demonstrates, the OTS takes these obligations very seriously.”
“Law enforcement relies on banks as the first layer of defense against money launderers and other criminal enterprises who choose to utilize our nation’s financial institutions to further their criminal activity,” said William P. Offord, Special Agent in Charge, IRS-Criminal Investigation. “Pamrapo Savings Bank’s blatant disregard for the Bank Secrecy Act reporting requirement rules removed that layer of defense, making it more difficult to identify, detect and deter these types of criminals.”