EagleBank Fraud Shows Failure of Bank Secrecy Act

Nicholas Anthony

EagleBank is paying $9.7 million to resolve a Bank Secrecy Act investigation. At first glance, this case might sound like a success story for the Bank Secrecy Act. Yet, a deeper review makes it sound more like a failure. 

In the press release for the settlement, US Attorney Brian D. Miller said, “It is simply unacceptable for financial institutions to permit fraud under their noses.” Ironically, however, Miller could just as well have been describing the conduct of law enforcement. EagleBank reported the fraud concerns to the government through suspicious activity reports (SARs) within days of the account in question being opened in 2010. 

Despite these reports, law enforcement seemingly did nothing. Over the years, EagleBank filed more suspicious activity reports. Still, there was no visible action taken by law enforcement. In 2017, another bank sued the account holder for writing bad checks. Yet, law enforcement was still nowhere to be found.

It wasn’t until 2020 that law enforcement seemed to get involved. And it appears that the investigation only kicked off because one bank employee personally emailed the Federal Bureau of Investigation (FBI) and another bank employee personally emailed the Secret Service. 

Imagine if someone were repeatedly breaking into your home, and it took the police 10 years to arrive despite your alarm system notifying them each time. Worse yet, they only ever arrived because your neighbor had a friend who is a cop. That’s effectively what happened here. 

Now, EagleBank is not without fault (as it admitted in the settlement). The Department of Justice uncovered a clear conflict of interest between the fraudster and bank leadership. Whether it was out of hope of recouping lost money or outright corruption is unclear, but there is no denying that leadership at EagleBank overruled its own compliance team’s closure recommendations and backdated loan records to conceal delinquencies.

At the same time, however, EagleBank’s compliance team was actively reporting the fraudster to the government through suspicious activity reports. Yet, even with these reports sitting in the government’s hands, this fraud went unstopped for a decade. At some point, we have to ask, “What is the Bank Secrecy Act even doing?”

Good policymaking means assessing both the costs and the benefits. We know the Bank Secrecy Act intrudes on the privacy of countless Americans and costs financial institutions billions of dollars to comply with. Yet, this story seems to be an indictment of the policy, not a celebration. It’s just another instance of reports getting filed and thrown into the void. That doesn’t seem to be benefiting anyone.