EagleBank has agreed to pay more than $9.7 million to resolve an investigation into Bank Secrecy Act violations, the Justice Department said Tuesday.
EagleBank knew it had allowed clients to operate a check kiting scheme, a type of check fraud that works by taking advantage of the deposit float period to deposit nonexistent funds into a secondary account, according to a nonprosecution agreement.
Numerous bank customers identified as “high risk” and subject to multiple suspicious activity reports did not have their accounts closed due to bank personnel advocating against their closure, “even as compliance personnel repeatedly tried to stop it,” said Assistant Attorney General A. Tysen Duva, part of the Justice Department’s Criminal Division.
“Financial institutions are the first line of defense against financial crimes and must be gatekeepers, not gateways, for criminal activity,” Duva said. “As this resolution makes clear, when banks deliberately allow unlawful conduct to persist, the Criminal Division will ensure they are held accountable.”
In one case, a father and son who were friends with EagleBank’s former CEO Ronald Paul were able to operate a check-kiting scheme – first caught in 2008 – when senior executives repeatedly overrode compliance’s efforts to close the men’s accounts.
Facilitation of this scheme resulted in a loss of nearly $6.3 million.
Paul, who founded EagleBank in 1997, retired in 2018 due to health concerns. But Paul was permanently banned from working in banking in 2022, and fined $521,000, for allegedly engaging in insider lending, according to the Securities and Exchange Commission and Federal Reserve.
EagleBank, for its part, was required to pay $22.9 million to settle the insider lending probe.
EagleBank’s BSA settlement includes roughly $9.1 million in fines and a forfeiture of over $700,000, the latter of which is consistent with the bank’s proceeds from overdraft fees on accounts involved in check kiting.
The bank will also take measures to strengthen its anti-money laundering and countering the financing of terrorism program, which it willfully failed to establish between 2010 and 2021, the agreement indicated. Further, the bank will cooperate with the investigation and report any further criminal violations to the DOJ.
“We are pleased to resolve this matter with the U.S. Department of Justice,” an EagleBank spokesperson said in an email to Banking Dive. “The conduct described in the agreement pertains to historical matters… and the Bank has since implemented substantial enhancements to its compliance, governance and risk management programs, along with significant changes in leadership and oversight.
“EagleBank is committed to fully complying with all obligations of the agreement, and continues to uphold the highest standards of integrity, accountability and compliance,” the spokesperson said.
EagleBank’s next CEO, former Western Alliance executive Stephen Curley, is set to join the bank next week.
Susan Riel, Paul’s successor as EagleBank CEO, announced last November that she would retire.
