CommerceWest Bank Admits Bank Secrecy Act Violation and Reaches $4.9 Million Settlement with Justice Department
The Justice Department announced today that it has agreed to a $4.9 million civil and criminal resolution with CommerceWest Bank, of Irvine, California, arising out of the department’s investigation into consumer fraud schemes facilitated by the bank. Today the United States filed a criminal charge and a civil complaint in the U.S. District Court for the Central District of California.
The criminal information charges the bank with a felony violation of the Bank Secrecy Act in connection with the bank’s relationship with a third-party payment processor. The civil complaint alleges that CommerceWest Bank knowingly facilitated consumer fraud by permitting the payment processor to make millions of dollars of unauthorized withdrawals from consumer bank accounts on behalf of fraudulent merchants. To resolve the department’s criminal and civil allegations, CommerceWest Bank has agreed to a total monetary resolution of more than $4.9 million, a deferred prosecution agreement and a permanent injunction that reforms the bank’s practices to prevent such fraud in the future.
“CommerceWest Bank ignored a parade of red flags indicating that a third-party payment processor was defrauding hundreds of thousands of innocent victims,” said Acting Assistant Attorney General Benjamin C. Mizer of the Justice Department’s Civil Division. “As the civil and criminal actions filed against CommerceWest Bank today demonstrate, we will hold financial institutions accountable when they choose unlawfully to look the other way while fraudsters use the bank’s accounts to steal millions of dollars from American consumers.”
According to the civil complaint, from December 2011 through July 2013, CommerceWest Bank worked with V Internet Corp LLC, a third-party payment processor based in Las Vegas. V Internet processed transactions for fraudulent merchants that withdrew money from consumers’ bank accounts without authorization. These merchants included a fraudulent telemarketing company and a company that charged hundreds of thousands of victims for a payday loan referral fee they had never authorized. In early 2013, V Internet took over the payday loan referral scheme, operating as the payment processor and sole merchant from January 2013 through July 2013.
The complaint alleges that CommerceWest ignored clear warning signs indicating that V Internet and its merchants were defrauding consumers. V Internet’s debit transactions resulted in an abnormally high rate of rejected transactions. Approximately 50 percent of the transactions were returned by consumers and their banks. Many of those returned transactions included sworn affidavits, in which victims stated, under penalty of perjury, that the withdrawals on their accounts were unauthorized.
CommerceWest also received complaints and inquiries from other banks, which expressed their belief that V Internet’s transactions were fraudulent. Even in the face of these explicit warnings from other banks, CommerceWest did not terminate V Internet or file a Suspicious Activity Report, an alert banks are required to file with the government indicating the presence of suspicious illegal activity. Instead, CommerceWest and V Internet developed a practice of blocking transactions against accounts at those banks that complained, but allowing the transactions to continue against accounts at all other banks.
The complaint alleges that, by May 29, 2013, a CommerceWest official had determined that all of V Internet’s transactions appeared to be fraudulent and unauthorized. However, CommerceWest Bank did not make the decision to terminate V Internet until early July 2013. Even at that point, CommerceWest planned to allow V Internet an additional 30 days to wind down its processing activity. Only when the department notified CommerceWest that it intended to seek an emergency injunction did CommerceWest immediately terminate V Internet’s ability to access victims’ checking accounts.
The U.S. Postal Inspection Service (USPIS) seized more than $2.9 million from V Internet’s accounts at CommerceWest Bank. Postal inspectors additionally seized property purchased by V Internet’s owner with the proceeds of his fraudulent activity, including five airplanes, a Land Rover, a Dodge Charger, multiple tractors, five all-terrain vehicles and a fire truck.
“CommerceWest ignored warning signs and numerous complaints stemming from unauthorized withdrawals, and now it must pay the price for allowing innocent consumers to be ripped-off by fraudsters,” said Acting U.S. Attorney Stephanie Yonekura of the Central District of California.
“CommerceWest Bank not only failed to comply with its statutory obligation to notify the government of suspicious illegal activity involving consumer fraud,” said Inspector in Charge Gary Barksdale of the USPIS. “The bank also allowed fraudulent activity to continue through its accounts to the detriment of the American consumer.”
The criminal information filed today charges CommerceWest with willfully failing to file Suspicious Activity Reports, as required by the Bank Secrecy Act. The criminal charge will be deferred for two years under an agreement that requires CommerceWest Bank to admit to its wrongdoing, give up any claim to more than $2.9 million previously seized from V Internet’s bank accounts at CommerceWest, and cooperate fully in other civil and criminal investigations.
The department’s civil complaint alleges conduct that violates the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), a law enacted by Congress in 1989 as part of a comprehensive legislative plan to reform and strengthen the banking system and the federal deposit insurance system that protects the public from bank failures and that provides for the United States to recover civil monetary penalties. The department also alleges that CommerceWest Bank violated the civil anti-fraud injunction statute, which allows the government to seek a court order barring continued illegal conduct. According to the terms of the proposed civil consent decree, CommerceWest Bank will be required to pay $1 million to the U.S. Treasury as a civil monetary penalty and to forfeit $1 million to the USPIS Consumer Fraud Fund. CommerceWest Bank will also be required to implement a strict regime of underwriting and monitoring designed to prevent future consumer fraud by third-party payment processors.
The Justice Department’s case is being handled by Trial Attorney John W. Burke of the Civil Division’s Consumer Protection Branch in coordination with the U.S. Attorney’s Office for the Central District of California and with substantial investigative support from USPIS.