Bank is Accused of Assisting in Ponzi Scheme Fraud

This case involves a group of investors that invested in an investment firm that turned out to be perpetrating a Ponzi scheme. The principal of the investment firm had previously been convicted of fraud. The firm banked with the bank in question and used them to facilitate the fraud. The bank processed transactions for the firm that were irregular and inconsistent with an investment fund, allowing the accounts to be consistently overdrawn by millions of dollars, and waiving fees for the benefit of the firm when checks written against its accounts were returned for insufficient funds. Thus, it was alleged that the bank was negligent and knowingly assisted with the fraud.

Question(s) For Expert Witness

1. Please describe your experience in banking, specifically as it relates to compliance.

2. What are the appropriate steps a bank should take when enrolling a new business client?

3. If a client's transactions are irregular and inconsistent with their type of business, what action is a bank required to take?

Expert Witness Response E-163224

I have been responsible for regulatory compliance matters since early 2001. I acted as Anti-Money Laundering Officer, Privacy Officer, and Bank Ombudsman at a couple of head offices for North American financial institutions over a number of years. There are specific customer identification, collection, and verification procedures to be followed when onboarding new clients. These requirements are laid out in the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, the associated regulations, as well as in various regulatory guidelines issued by FINTRAC . Most specifically to this point would be the Know Your Client requirements. This initial collection and resulting due diligence is essential to managing a customer relationship and forms the important basis and foundation for then later being able to differentiate the unusual from the usual. Banks must have policies and processes in place to identify inconsistent, unusual and suspicious transactions. There should be internal escalation processes whereby staff can raise and report their concerns so that they are investigated more thoroughly by the fraud department and/or compliance officer. They will then determine what actions need to be taken such as terminating the client relationship and/or mandatory reporting to authorities.