EagleBank to Pay Over $9.7 Million to Settle Bank Secrecy Act Violations

EagleBank and its parent company, Eagle Bancorp Inc., have agreed to pay more than $9.7 million to resolve a Justice Department investigation into violations of the Bank Secrecy Act. The agreement, announced by the U.S. Attorney’s Office for the Middle District of Pennsylvania, includes a significant monetary penalty and a commitment to strengthen the bank’s anti-money laundering programs. The investigation revealed that for over a decade, EagleBank failed to implement an adequate anti-money laundering and counter-terrorist financing program, a violation of federal law.

The core of the investigation centered on EagleBank’s knowledge and allowance of a check kiting scheme that persisted for more than ten years. This fraudulent activity involved two customers, identified as a father and son, who exploited accounts at EagleBank. Check kiting is a scheme where individuals deposit checks into an account with insufficient funds, intending to withdraw or transfer those funds before the issuing bank detects the lack of coverage. This often involves a circular pattern of writing bad checks to cover previous overdrafts, taking advantage of the time it takes for checks to clear.

The scheme facilitated by EagleBank resulted in a loss of nearly $6.3 million to another financial institution. Notably, the father involved in the check kiting was a business associate and friend of EagleBank’s former chairman and chief executive officer, who departed the company in 2019. Despite repeated attempts by bank compliance personnel to halt the illicit activity by closing the accounts, senior bank executives allegedly intervened and overrode these efforts. This failure to act decisively allowed the fraud to continue for over a decade.

Under the terms of the non-prosecution agreement, EagleBank will pay a fine of $9,057,821.62 to the United States. Additionally, the bank will forfeit $736,515, which represents proceeds derived from overdraft fees charged on the accounts involved in the fraudulent scheme. Beyond the financial penalties, EagleBank has committed to implementing remedial measures to bolster its anti-money laundering and counter-terrorist financing protocols. The bank will also cooperate with the Department of Justice’s ongoing investigations and will be required to report any identified violations of federal criminal law. The Federal Bureau of Investigation (FBI) led the investigation into this matter.

The resolution of this investigation highlights the critical role financial institutions play in preventing financial crimes. The Bank Secrecy Act requires banks to maintain robust programs to detect and prevent money laundering and the financing of terrorism. Failures in these programs can have significant consequences, as demonstrated by this case, which involved a substantial financial loss and a prolonged period of undetected fraudulent activity. Residents can expect that financial institutions will face increased scrutiny in their compliance efforts following this agreement.

Article by Mel Anara, based upon information from the U.S. Attorney’s Office, Middle District of Pennsylvania

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