By Emily Flitter
NEW YORK May 17 The U.S. Federal Reserve Board
said it has told Bank of Montreal to step up efforts to detect
and prevent money laundering at the Canadian bank's Chicago
The warning puts Bank of Montreal in a growing category of
financial institutions under pressure to do a better job of
adhering to strict U.S. requirements for identifying potentially
illegal activity by their customers.
The Fed entered into a written agreement requiring Bank of
Montreal to strengthen its compliance after a recent inspection
by the central bank's examiners found deficiencies in Bank of
Montreal's anti-money laundering program. The Fed made the
agreement public on Friday.
A spokeswoman for the Fed declined to describe the problems
it found, saying its policy prohibits discussion of specific
"Our remediation activities are well underway," said BMO
spokesman Paul Deegan. "BMO is fully committed to the highest
standards of regulatory compliance with Bank Secrecy
Act/Anti-Money Laundering requirements and expectations in each
of the jurisdictions in which we operate."
The agreement said the Fed found Bank of Montreal's Chicago
branch "lacked effective systems of governance and internal
controls to adequately oversee the activities of Bank of
Montreal's U.S. operations with respect to legal, compliance,
and reputational risks."
Banks operating in the United States, whether they are
American or foreign, must closely monitor customer activity for
signs of money laundering or other illegal acts. They must
report unusual behavior in the form of "suspicious activity
reports" to the U.S. Treasury Department.
The Treasury uses the reports - sharing them with the
Federal Bureau of Investigation and other law enforcement
agencies - to help track down criminals and terrorists.
The U.S. Treasury is currently building a system to more
broadly share the banks' reports with U.S. spy agencies as well.
The anti-money laundering rules were first defined by the
Bank Secrecy Act and later strengthened by the USA Patriot Act
after the attacks of Sept. 11, 2001.
Scrutiny of these programs may get tougher this year,
according to an April 5 note by Fitch.
Citing heavy fines the U.S. levied against HSBC and
Standard Chartered for lapses in anti-money laundering
controls last year, Fitch analysts predicted banks could spend
more this year on anti-money laundering compliance.
"For customers of affected banks, tougher AML scrutiny will
likely lead to longer transaction times, increased documentation
requirements, and potentially higher fees," the analysts wrote.
JPMorgan Chase & Co and Citigroup have also run into
trouble recently with anti-money laundering requirements.
JPMorgan is under fire from another regulator, the
Office of the Comptroller of the Currency, which expected to
issue a "cease-and-desist" order - a more serious citation than
the Fed's warning to Bank of Montreal - in the coming months.
The Fed told Citi in March to improve its money-laundering