November 1, 2018

PenFed Employees Saw Anti-Money-Laundering Compliance Gaps

Employees at one of the largest and fastest-growing credit unions in the U.S. told executives and regulators that it had a flawed program to prevent money laundering, according to people familiar with the matter and internal credit-union documents.

The concerns raised about Pentagon Federal Credit Union in 2016 and 2017 included understaffing, gaps in reporting of potentially suspicious transactions to the government, insufficient monitoring of wire transfers, a lack of anti-money-laundering training for senior leaders and inadequate scrutiny of potentially high-risk customers, according to internal PenFed emails and reports.

The documents, which haven’t previously been reported, don’t contain evidence of alleged money laundering by PenFed customers. They include emails and reports created by PenFed staffers who analyzed the adequacy of its anti-money-laundering operation and were arguing for a higher budget, given the credit union’s rapid growth.

In response to questions from The Wall Street Journal about the employees’ concerns, PenFed’s chief audit executive, Russell Rau, said in a statement: “These false allegations against PenFed were properly reviewed by the appropriate third party authorities that have unfettered access to ALL relevant information, and were determined to be unfounded.”

The National Credit Union Administration, PenFed’s regulator, and the Treasury Department’s Financial Crimes Enforcement Network, known as FinCEN, which enforces anti-money-laundering rules, declined to comment.

PenFed General Counsel Scott Lind said that the credit union’s anti-money-laundering program “fully complies with all government regulations.”

In the time since its employees raised concerns, PenFed has made changes to the program, according to Mr. Lind and other documents reviewed by the Journal. These changes include reorganizing management, hiring more staff, adopting new policies and investing in suspicious-activity detection technology.

More of the story from Wall Street Journal