By the Division of Banks

COMMONWEALTH OF MASSACHUSETTS

Suffolk, SS.

COMMISSIONER OF BANKS
FOREIGN TRANSMITTAL
AGENCY LICENSING
Docket No. 2008-014

FINDINGS OF FACT AND TEMPORARY
ORDER TO CEASE AND DESIST


In the Matter of
ESPIRITO SANTO E COMERCIAL
DE LISBOA, INC.
Newark, New Jersey

Foreign Transmittal Agency License No. FT 1349


The Commissioner of Banks ("Commissioner") having determined that ESPIRITO SANTO E COMERCIAL DE LISBOA, INC., located at 73-75 Ferry Street, Newark, New Jersey ("Espirito Santo" or the "Corporation") has engaged, or is engaged in, or is about to engage in, acts or practices constituting violations of Massachusetts General Laws chapter 169, and applicable regulations found at 209 CMR 44.00 et seq., hereby issues the following ORDER TO CEASE AND DESIST pursuant to General Laws chapter 169, section 13(b).

FINDINGS OF FACT

  1. The Division of Banks ("Division"), through the Commissioner, has jurisdiction over the licensing and regulation of persons engaged in the business of a foreign transmittal agency pursuant to Massachusetts General Laws chapter 169.
  2. Espirito Santo is, and at all relevant times has been, a foreign corporation conducting business in the Commonwealth of Massachusetts. Espirito Santo's main office is located at 73-75 Ferry Street, Newark, New Jersey.
  3. Espirito Santo is licensed by the Commissioner as a foreign transmittal agency under Massachusetts General Laws chapter 169. According to records maintained on file with the Division, the Commissioner initially issued a foreign transmittal license to Espirito Santo on or about September 3, 1997, with license number FT1349. License number FT1349 authorized Espirito Santo to operate as a foreign transmittal agency at 1351 Acushnet Avenue, New Bedford, Massachusetts.
  4. By letter from Antonio Gato, President and CEO of Espirito Santo and received by the Division on or about July 3, 2007, Espirito Santo notified the Division that the Corporation was closing its office at 1351 Acushnet Avenue, New Bedford, effective July 15, 2007. In the letter, Mr. Gato requested that the license be "relocated" to its main office in Newark, New Jersey to keep the license active because it was his intention to open another office location in Massachusetts at a future date. Espirito Santo thereafter returned its original license certificate to the Division and on July 11, 2007 the Division reissued license FT1349, authorizing Espirito Santo to conduct business at its main office location at 73-75 Ferry Street, Newark, New Jersey.
  5. Espirito Santo filed an application for renewal on or about May 19, 2008. As of the date of this Temporary Order, the Division has not made a determination on the license renewal application.
  6. Pursuant to Massachusetts General Laws chapter 169, section 10, the Division conducted an inspection of the books, accounts, papers, records, and files of Espirito Santo on October 9, 2007 (the "examination/inspection").
  7. The Division's Report of Examination/Inspection (the "Report"), which was issued to Espirito Santo on the effective date of this Temporary Order, presented the findings of the 2007 examination/inspection and alleged significant failures to comply with applicable state and federal laws, rules, regulations, and regulatory bulletins governing the conduct of those engaged in the business of a foreign transmittal agency in Massachusetts.

    A. Failure to File Suspicious Activity Reports

  8. The Bank Secrecy Act's (BSA's) (31 U.S.C. § 5311 et seq.) implementing regulation at 31 CFR § 103.20(a)(1) states, in part:

    Every money services business . . . shall file with the Treasury Department, to the extent and in the manner required by this section, a report of any suspicious transaction relevant to a possible violation of law or regulation . . .

  9. The BSA's implementing regulation at 31 CFR § 103.20(a)(2) states, in part:

    A transaction requires reporting under the terms of this section if it is conducted or attempted by, at, or through a money services business, involves or aggregates funds or other assets of at least $2,000… and the money services business knows, suspects, or has reason to suspect that the transaction (or a pattern of transactions of which the transaction is a part):… (ii) Is designed, whether through structuring or other means, to evade any requirements of this part or of any other regulations promulgated under the Bank Secrecy Act, Public Law 91-508, as amended, codified at 12 U.S.C. 1829b, 12 U.S.C. 1951-1959, and 31 U.S.C. 5311- 5330; or (iii) Serves no business or apparent lawful purpose, and the reporting money services business knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction. (iv) Involves use of the money service business to facilitate criminal activity.

  10. The examination/inspection revealed that Espirito Santo did not file any Suspicious Activity Reports by Money Services Business ("SAR-MSBs") for transactions conducted in Massachusetts for the period July 2006 to July 2007. However, the Division's examiners identified 28 transactions totaling over $450,000 that Espirito Santo should have known, suspected or had reason to suspect were suspicious. Specifically, the Corporation should have had reason to suspect that the transactions were designed to evade the reporting requirements of the BSA. The transactions identified by the examiners are specifically set forth in the Report and are incorporated herein by reference.

    B. Failure to Implement an Effective Anti-Money Laundering Program

  11. The BSA's implementing regulation at 31 C.F.R. § 103.125 states, in part:
    1. Each money services business . . . shall develop, implement and maintain an effective anti-money laundering program . . . . that is reasonably designed to prevent the money services business from being used to facilitate money laundering and the financing of terrorist activities.
    2. The program shall be commensurate with the risks posed by the location and size of, and the nature and volume of the financial services provided by, the money services business.
  12. The BSA's implementing regulation at 31 C.F.R. § 103.125(d) requires that money services businesses implement written anti-money laundering policies and procedures that, at a minimum: (1) incorporate policies and procedures and internal controls reasonably designed to assure compliance with this part, including requirements verifying customer identification, filing reports, creating and retaining records, and responding to law enforcement requests; (2) designate a person to assure day to day compliance with the program; (3) provide for education and/or training of appropriate personnel, including training in the detection of suspicious transactions; and (4) provide for independent review to monitor and maintain an adequate program.

    (i) Policies, Procedures and Internal Controls

  13. Books and records reviewed during the examination/inspection revealed that Espirito Santo's written anti-money laundering manual either did not include requirements for verifying customer identification, responding to law enforcement requests, or providing for independent audits. The portions of the manual addressing requirements for filing of reports, creating and retaining records, and training of personnel are insufficiently documented in the manual.
  14. The examination/inspection revealed that Espirito Santo's policies, procedures, and internal controls were insufficient to maintain an effective anti-money laundering program and were not commensurate with the volume, dollar amounts, geographical reach and nature of the transactions processed by the Corporation, as more specifically enumerated in this Temporary Order and in the Examiner's Comments and Conclusions section of the Report.

    (ii) Designated Compliance Officer

  15. The BSA's implementing regulation at 31 C.F.R. 103.125(d)(2) states, in part:

    [The money services business' anti-money laundering program shall] [d]esignate a person to assure day to day compliance with the program and this part. The responsibilities of such person shall include assuring that: (i) The money services business properly files reports, and creates and retains records, in accordance with applicable requirements of this part; (ii) The compliance program is updated as necessary to reflect current requirements of this part, and related guidance issued by the Department of the Treasury; and (iii) The money services business provides appropriate training and education in accordance with paragraph (d)(3) of this section.

  16. Espirito Santo has designated a compliance officer; however, the examination/inspection revealed that the compliance officer failed to effectively perform the required duties and appeared to lack the skills and knowledge necessary for that position. Specifically, as explained in more detail in this Temporary Order and in the Examiner's Comments and Conclusions section of the Report, the compliance officer failed to ensure that Espirito Santo properly identified suspicious transactions that would require the filing of SAR-MSBs under 31 C.F.R. § 103.20 and failed to ensure that the Corporation properly filed Currency Transaction Reports as required pursuant to 31 C.F.R. § 103.22.

    (iii) Education and Training

  17. The BSA's implementing regulation at 103 C.F.R. § 103.125(d)(3) states:

    [The money services business' anti-money laundering program shall] [p]rovide education and/or training of appropriate personnel concerning their responsibilities under the program, including training in the detection of suspicious transactions to the extent that the money services business is required to report such transactions under this part.

  18. Espirito Santo's training manual briefly sets out training and education requirements for new hires and ongoing training for employees. Because the New Bedford office was closed at the time of the examination/inspection, the Division's examiners were unable to question Espirito Santo's employees to ascertain their knowledge of their responsibilities under an anti-money laundering program. However, the examination/inspection revealed that, in practice, the training program evidently did not effectively ensure that all personnel were adequately trained to identify and report suspicious transactions pursuant to 31 C.F.R. 103.20, as evidenced by the Corporation's failure to file SAR-MSBs when required and more specifically explained in this Temporary Order and in the Examiner's Comments and Conclusions section of the Report.

    (iv) Independent Review

  19. The BSA's implementing regulation at 31 C.F.R. § 103.125(d)(4) states:

    [The money services business' anti-money laundering program shall] [p]rovide for independent review to monitor and maintain an adequate program. The scope and frequency of the review shall be commensurate with the risk of the financial services provided by the money services business. Such review may be conducted by an officer or employee of the money services business so long as the reviewer is not the person designated in paragraph (d)(2) of this section.

  20. The examination/inspection revealed that Espirito Santo's independent review was ineffective and not commensurate with the risk of the financial services provided by the Corporation. The audit was conducted by the Corporation's parent company, Banco Espirito Santo, Lisbon Portugal. Banco Espirito conducted its review in 2006 but did not conduct an on-site assessment of the Corporation's anti-money laundering program at the New Bedford location. There is no evidence that the review evaluated Espirito Santo's policies and procedures for identifying suspicious transactions as required by 31 C.F.R. § 103.20. Moreover, the audit failed to identify easily recognizable weaknesses in the compliance program such as failure to develop, implement and maintain a written anti-money laundering program that fully complies with 31 C.F.R. § 103.125.

    C. Failure to PROPERLY File Currency Transaction Reports

  21. The BSA's implementing regulation at 31 C.F.R. § 103.22(b)(1) states, in part:

    Each financial institution other than a casino shall file a report of each deposit, withdrawal, exchange of currency or other payment or transfer, by, through, or to such financial institution which involves a transaction in currency of more than $10,000 . . .

  22. The BSA's implementing regulation at 31 C.F.R. § 103.27(a)(1) states:

    A report required by § 103.22(a) shall be filed by the financial institution within 15 days following the day on which the reportable transaction occurred.

  23. Books and records reviewed during the examination/inspection revealed that the Corporation filed only one currency transaction report ("CTR") during the period of July 2006 to July 2007. The aforementioned CTR's filing date was January 12, 2006 [ sic] for a transaction conducted on December 16, 2006, exceeding the 15 day time limit. In addition, Part III of the CTR did not include the regulator number.

    D. Failure to Comply with Certain of the Division's Regulations

  24. The Division's regulation 209 CMR 44.07(3) states:

    The Licensee [foreign transmittal agency] shall maintain complete and accurate trust account records. The Licensee shall produce, upon request, all documents pertaining to trust account activity, including, but not limited to, bank statements, check stubs, canceled, voided or unused checks, deposit tickets, and reconciliations or other comparable account records.

  25. During the examination/inspection, the Division's examiners requested account statements pertaining to the Corporation's trust account. Espirito Santo was unable to produce adequate account statements in response to the examiners' request because the accounts were maintained and held by its parent company, Banco Espirito Santo.
  26. The Division's regulation 209 CMR 44.10(3) states, in part:

    Grounds for license revocation under M.G.L. c. 169, § 12 and the issuance of cease and desist orders under M.G.L. c. 169, § 13 shall include, but are not limited to, the following prohibited acts and practices by Licensees [foreign transmittal agencies]: . . . 3) failing to disclose the type and number of its license(s) to all clients in writing at the time deposits for transmittal abroad are accepted or to fail to disclose the type and number of its license(s) in all advertisements.

  27. Espirito Santo failed to disclose its license type and number on its website, www.espiritosanto.us.

    Conclusions of Law

  28. Based on the information contained in Paragraphs 1 through 27, Espirito Santo has failed to demonstrate the financial responsibility, character, reputation, integrity, and general fitness that would warrant the belief that the business will operated honestly, fairly, and soundly in the public interest in violation of Massachusetts General Laws chapter 169, section 6 and the Division's regulation 209 CMR 44.03.
  29. Based upon the information contained in Paragraphs 1 though 27, Espirito Santo failed to properly file SAR-MSBs, in violation of 31 C.F.R. § 103.20.
  30. Based upon the information contained in Paragraphs 1 though 27, Espirito Santo failed to implement an effective anti-money laundering program commensurate with the risks posed by the location and size of, and nature and volume of the financial services provided by the Corporation, in violation of 31 C.F.R. § 103.125.
  31. Based upon the information contained in Paragraphs 1 though 27, Espirito Santo failed to properly file CTRs, in violation of 31 C.F.R. §§ 103.22 and 103.27.
  32. Based upon the information contained in Paragraphs 1 through 27, Espirito Santo failed to produce complete trust account records, in violation of the Division's regulation 209 CMR 44.07(3).
  33. Based upon the information contained in Paragraphs 1 though 27, Espirito Santo failed to disclose the type and number of its license on its website, in violation of the Division's regulation 209 CMR 44.10(3).
  34. Based upon the information contained in Paragraphs 1 through 27, the Commissioner has determined that:
    1. Espirito Santo has engaged, or is about to engage in, acts or practices which warrant the belief that the Corporation is not operating honestly, fairly, soundly and efficiently in the public interest in violation of standards governing the licensing and conduct of a foreign transmittal agency including, but not limited to, the provisions under General Laws chapter 169 and the Division's regulations at 209 CMR 44.00 et seq.
    2. The public interest will be irreparably harmed by delay in issuing an ORDER TO CEASE AND DESIST to Espirito Santo.
  35. Based upon the information contained in Paragraphs 1 through 27, had the facts and conditions found therein existed at the time of Espirito Santo's original foreign transmittal agency license application, the Commissioner would have been warranted in refusing to issue such license.

    ORDER TO CEASE AND DESIST

    After taking into consideration the FINDINGS OF FACT and CONCLUSIONS OF LAW stated herein, it is hereby:

  36. ORDERED that Espirito Santo, any and all officers, directors, employees, independent contractors, or agents operating on behalf of Espirito Santo, and their successors or assigns, shall immediately cease engaging directly or indirectly in the business of a foreign transmittal agency in Massachusetts, as defined in M.G.L. chapter 169, section 1, except as otherwise expressly permitted by the terms of this Temporary Order.
  37. IT IS FURTHER ORDERED that within thirty (30) days of the effective date of this Temporary Order, Espirito Santo shall file with the Treasury Department SAR-MSBs on the transactions specifically identified in Report. Espirito Santo shall submit to the Division evidence of compliance with this Paragraph, including receipt(s) evidencing proof of filing and copies of all completed SAR-MSBs.
  38. IT IS FURTHER ORDERED that within thirty (30) days of the effective date of this Temporary Order, Espirito Santo shall conduct a review of all transactions conducted in Massachusetts since October 9, 2004 involving funds or other assets of at least $2,000 to identify transactions that Espirito Santo should have known, suspected, or had reason to suspect were suspicious, pursuant to 31 C.F.R. § 103.20. Espirito Santo shall then forthwith file SAR-MSBs for the transactions so identified. Espirito Santo shall submit to the Division evidence of compliance with this Paragraph, including receipt(s) evidencing proof of filing and copies of all completed SAR-MSBs.
  39. IT IS FURTHER ORDERED that within thirty (30) days of the effective date of this Temporary Order, Espirito Santo shall conduct a review of all cash transactions conducted in Massachusetts since October 9, 2004 to identify transactions involving currency of more than $10,000 and shall forthwith file CTRs for the transactions so identified. Espirito Santo shall submit to the Division evidence of compliance with this Paragraph, including receipt(s) evidencing proof of filing and copies of all completed CTRs.
  40. IT IS FURTHER ORDERED that Espirito Santo continue in full its bond with International Fidelity Insurance Company, Bond Number 0258784, for $211,000 until the Division has determined that the Corporation has satisfactorily complied with all provisions of this Temporary Order.
  41. IT IS FURTHER ORDERED that this Temporary Order shall become effective immediately and shall remain in effect unless set aside, limited or suspended by the Commissioner or upon court order after review pursuant to General Laws chapter 30A.
  42. IT IS FURTHER ORDERED that a hearing will be scheduled on this matter to determine whether or not such Temporary Order shall become permanent and final only upon receipt of a written request for such a hearing from the Licensee within twenty (20) days of the effective date of this Temporary Order. If no hearing is requested within this twenty (20) day period, this Temporary Order shall become permanent and final until it is modified or vacated by the Commissioner.

BY ORDER AND DIRECTION OF THE COMMISSIONER OF BANKS.

Dated at Boston, Massachusetts, this 7th day of November, 2008

By: Steven L. Antonakes
Commissioner of Banks
Commonwealth of Massachusetts