Davis Polk partner Dan Stipano discussed the power federal regulators have to revoke a bank’s charter when it is convicted of money laundering with American Banker. It is referred to as the so-called “death penalty provision,” but has never been used. 

The article notes that in some cases, banks implicated in money laundering have pleaded guilty to alternative crimes, which has averted a regulatory hearing on whether to revoke the bank’s charter. In other situations, banks have entered into deferred prosecution agreements with law enforcement, which allow the banks to avoid pleading guilty if they adhere to certain conditions.

Dan explained that a regulatory hearing to revoke a bank’s charter after a criminal conviction for money laundering may lead to bigger problems than those tied to a single bank’s risk management. “If it’s a bank of any consequence, that would be very disruptive for the bank, but not just for the bank,” he said. “If it’s a significant enough bank, it could have consequences for the broader financial system and economy.”

Dan said that he would be surprised if a bank broke from precedent by pleading guilty to money laundering. 

He added that on one hand, it’s probably frustrating to the Department of Justice when it puts together a strong money laundering case but instead enters a deferred prosecution agreement or goes for a conviction on lighter charges to avoid jostling the financial system. On the other hand, regulators and law enforcement have taken heat from politicians in the past when banks’ anti-money-laundering programs fail and those banks still don’t face the possibility of charter revocation.

“Typically the way these things play out in the real world is that it never really comes to this,” Dan explained.

“The anti-money-laundering lever that regulators have never used,” American Banker (October 4, 2024) (subscription required) 

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