Wells Fargo set to be freed from AML consent order

Wells Fargo is on the verge of being freed from a 2015 enforcement action tied to violations of its controls for combating money laundering.

The Office of the Comptroller of the Currency recently informed Wells that it’s been found to have satisfied the requirements of the five-year-old consent order, according to two sources close to the situation. Notifying the bank is a procedural step that precedes the formal termination of a regulatory order.

The bank’s release from the order would mark progress in CEO Charlie Scharf's efforts to resolve its sprawling regulatory problems.

Bloomberg

Still, the 2015 consent order is an illustration of how some of the San Francisco bank’s regulatory problems have spawned more such trouble. Wells Fargo said in a securities filing last month that it was continuing to respond to inquiries from various federal agencies in connection with another matter that grew out of its efforts to comply with the anti-money-laundering order.

Spokespeople for the OCC and Wells Fargo declined to comment.

Scharf, who took over as Wells Fargo’s CEO in October 2019, has said that meeting regulatory requirements is the firm’s top priority. The 2015 enforcement action is one of 11 public consent orders under which the $1.9 trillion-asset bank has been operating. That number had been 12, but a 2015 consent order with the Consumer Financial Protection Bureau over alleged kickbacks in the mortgage business expired earlier this year.

Referring to the bank’s regulatory woes, Scharf said earlier this month at an investor conference, “I think it took a while for people to really digest what it all meant for the company, quite frankly.”

Wells Fargo still faces a long road ahead. Bloomberg reported in early December that some top company executives expect an asset cap imposed by the Federal Reserve in 2018 to remain in place until at least late 2021, while key Fed officials foresee an even longer timeline.

The 2015 consent order was a response to problems that regulators found in Wells Fargo’s wholesale banking unit, which handled corporate customers with annual sales in excess of $5 million. The OCC determined that the bank’s processes for determining whether individual customers posed a money laundering risk were ineffective. The order required Wells to collect certain information about the true owners of Wells Fargo’s corporate customers, in accordance with regulatory guidance on the beneficial ownership of companies.

But after Wells started doing the labor-intensive work needed to satisfy its regulators, new problems arose. In 2018, Wells Fargo disclosed publicly that unnamed federal agencies had opened inquiries into potential misconduct in connection with the bank’s efforts to collect the beneficial ownership information. The problems were first identified by a caller to the company’s ethics line, according to 2019 congressional testimony by then-CEO Tim Sloan.

The Wall Street Journal has reported that Wells Fargo employees improperly added or altered information about customers, including their Social Security numbers, dates of birth and home addresses. Documents were fabricated, and hundreds of employees were fired, one source familiar with the situation told American Banker recently.

Wells Fargo’s most recent quarterly securities filing shows that the regulatory inquiries related to the collection of beneficial ownership information were still ongoing in November.

“When regulators find something significant that went wrong in the compliance space, they typically will start to pay more attention to the compliance program as a whole, and in so doing, discover lots of other deficiencies that might have otherwise gone unnoticed,” said Ross Delston, an independent Washington, D.C.-based attorney who specializes in anti-money-laundering compliance matters.

The AML consent order preceded the eruption of the Wells Fargo’s fake-accounts scandal in 2016, which led to both more regulatory problems and multiple shake-ups in the bank’s leadership ranks.

Underscoring how much turnover the bank has seen in recent years, none of the seven board members who signed the 2015 consent order, including former Chairman and CEO John Stumpf, are still with the company.

Perry Pelos, who headed middle-market banking at the time the consent order was put in place, has described the ensuing compliance work as both expensive and time-intensive. Pelos became CEO of commercial banking at Wells Fargo earlier this year as part of a reorganization.

“It's not that we don't know who our customers are. It's that we're not very good at documenting it. We're not very good at aggregating things,” Pelos said in 2018, according to a transcript of his remarks at the company’s investor day that year.

Some other big banks have taken even longer than Wells Fargo to resolve consent orders involving anti-money-laundering rules. A JPMorgan Chase order with the Fed from January 2013 remained in place for nearly seven years.

In Citigroup’s case, the Fed said in an October 2020 enforcement action that the New York bank had not adequately addressed AML deficiencies that were identified in a 2013 consent order.

Correction: An earlier version of this story said that Perry Pelos headed wholesale banking in 2015. Tim Sloan, later Wells Fargo's CEO, held that role in 2015.