A member of the Governor’s Trust Fund Task Force supports a recent federal penalty against a South Dakota-chartered trust company.
Federal regulators said The Kingdom Trust Company willfully violated the Bank Secrecy Act and failed to report suspicious activity.
The Financial Crimes Enforcement Network, or FinCEN, has announced a $1.5 million civil penalty against the company.
“It’s kind of like if you’re following the speed limit and seeing someone else who was violating the speed limit get pulled over. It’s reenforcing for you that you’re doing the right thing," said Tom Simmons, a member of the governor’s trust fund task force. Simmons also teaches estate law at USD.
“I think it shows that those who are not doing what they’re required to do—in terms of complying with all the expectations that are imposed on them—are going to get in trouble," Simmons added. "That’s exactly what everyone in the trust industry wants to see.”
The Kingdom Trust Company did not comply with federal law for about five years, according to a consent order by FinCEN.
In 2016 and 2017, FinCEN said the company failed to identify 400 transactions totaling about $63 million reported as mobile phone payments that were cash and wire transfers from illegal drug sales.
Prior to 2018, The Kingdom Trust had no internal process to identify and report suspicious activity. For a year and a half, a single employee reviewed thousands of daily transactions. Once a compliance officer was hired, only a single suspicious activity report was filed up until 2021.
Simmons said the financial services industry must remain diligent.
“There’s always going to be nefarious agents trying to break into the U.S. financial system, whether it’s through banks or credit unions or trust companies. You can never let your guard down. Every day you open for business anew, you have the potential of bad guys attempting to crack into your system and use your services to conduct wrong," Simmons said. "That’s why vigilance is so important.”
The $1.5 million fine is FinCEN’s first enforcement action against a trust company. A November 2020 federal law requires trust companies to comply with the federal Anti-Money Laundering law.
The state Division of Banking also examines a trust company every two to three years. It’s unclear when the state last examined The Kingdom Trust Company. Officials with the state Department of Labor say state law prohibits them from disclosing that information.
"This order is a stark reminder to everyone in this industry of their obligations and the consequences for not building an effective program," said DLR spokesperson Dawn Dovre in an email. "The Division of Banking has an open line of communication with FinCEN and will continue to coordinate with them in our ongoing efforts to safeguard the U.S. financial system."
