Risk Management

KeyBank Sheds Money-Laundering Edicts

In April, a former senior treasury official at the bank was sentenced to eight years in prison for fraudulently obtaining more than $40 million in ...
Stephen TaubJune 27, 2007

The Comptroller of the Currency has removed an October 2005 consent order against KeyBank National Association requiring the bank to patch up its money-laundering defenses required under the Bank Secrecy Act.

Further, the Federal Reserve Bank of Cleveland has ended a Memorandum of Understanding concerning the anti-money laundering and Bank Secrecy Act operations and internal controls of KeyBank National, a wholly-owned subsidiary of KeyCorp.

Although neither the OCC nor the FRB imposed a fine or civil money penalty in 2005 connection with those actions, KeyBank agreed to strengthen its internal controls under the secrecy act. Those steps included improving: BSA compliance; controls for suspicious-activity reporting; BSA audit functions and its independent audit program; and employee training in the detection and prevention of money laundering.

In April, David Verhotz, once the senior vice president for global treasury management at KeyBank, was sentenced to 97 months in prison—the maximum term allowable under sentencing guidelines—after pleading guilty to bank fraud, according to an announcement made by Gregory White, U.S. Attorney for the Northern District of Ohio.

U.S. District Judge John R. Adams also sentenced Verhotz to five years of supervised release and ordered him to pay about $18.6 million in restitution to his former employer.

Verhotz, whose responsibilities included requesting, approving, and underwriting trade-advance loans for international banking customers, was accused of fraudulently obtaining more than 100 loans from KeyBank, totaling more than $40 million, in the names of several foreign banks and an international trade company.

According to prosecutors, a hefty portion of the proceeds went for Verhotz’s personal use, including $5.6 million to buy a home in New York’s Hamptons, about $2.7 million toward a condominium on Park Avenue, and more than $2 million for jewelry. Verhotz was ordered to forfeit those assets.

Prosecutors maintained that Verhotz used some of the loan proceeds to repay existing loans in order to conceal and continue the scheme. During 2006, however, he allegedly got 29 loans from KeyBank, totaling about $18.6 million, in the names of three foreign banks. Those loans remain outstanding and are the ones subject to repayment by Verhotz.

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