US Trust Settles ? For $10 Million And "Change"

July 13, 2001 ( - US Trust Corp., an investment firm catering to the super wealthy, will pay a $10 million fine for patchy record keeping, lax internal controls, and inadequate compliance with the Bank Secrecy Act.

The Fed said Schwab’s US Trust unit failed to maintain “accurate and complete books and records” tied to its strategic trading group, which specializes in processing trades in restricted securities. However, US Trust says none of its clients were exposed to any risk of loss.

“Close” Calls

The bank, which is paying $5 million each to the Federal Reserve and the New York State Banking Department, contravened federal rules designed to guard against money laundering and failed to maintain comprehensive records in its Strategic Trading Group, according to the regulators.

Although the bank did not admit to any wrongdoing in the settlement, it did acknowledge deficiencies and the need for immediate corrective action, according to the Fed

Reports indicated the presence of transactions that seemed designed to circumvent the $10,000 transaction reporting requirements of the BSA. Transactions for $9,999, as well as unusual series of transactions that totaled more than $10,000, were cited in press reports.

Measures Taken

The bank has taken steps to bring its compliance policies and procedures up to scratch and refrain from future violations as required by the regulators. In order to do this:

  • over 90% of US Trust?s employees have taken a five-hour course on compliance with the Bank Secrecy Act.
  • audit firms KPMG LLP and PricewaterhouseCoopers were hired to review compliance policies and procedures and recommend changes
  • the bank also hired Barry Koch to head bank secrecy compliance.
  • new bank secrecy software is scheduled for installation in early 2002.
  • U.S. Trust must submit an enhanced compliance program relating to the Bank Secrecy Act within 45 days of the order, and within 30 days, it must hire a senior officer to manage the plan. Thereafter it must submit monthly reports detailing its efforts to the Fed until further notice from the regulators.

In addition, the strategic trading group is being transferred into Schwab’s operations, as regulators felt the unit’s activities should be conducted within a broker-dealer.

Buying Order

US Trust was purchased in May 2000 for $2.94 billion in stock by Charles Schwab, after the Gramm Leach Bliley legislation in November 1999 allowed banks to engage in asset management and insurance activities.

US Trust acquired Strategic Trading, a provider of consulting, trading and derivative hedging services to wealthy individuals and families, in December 1998.