Washington, D.C., the political heart of the United States, has responded with haste and caution to the recent news about Silicon Valley Bank’s failure to comply with anti-money laundering regulations. While some industry professionals and investors have criticized regulators for being too harsh and discouraging innovation, Washington sees non-compliance as a serious threat to national security and financial stability.
The U.S. Department of Treasury announced on December 18, 2020, that it had fined Silicon Valley Bank $60 million for violating the Bank Secrecy Act and related regulations. The bank failed to establish and implement an adequate anti-money laundering program, failed to file suspicious activity reports in a timely manner, and failed to conduct due diligence of some high-risk clients. The Treasury found that these deficiencies enabled illicit activity, including fraud, drug trafficking, and terrorist financing.
Silicon Valley Bank, headquartered in Santa Clara, California, is a national bank that provides commercial banking services to technology and life science companies and investors. It is known for its innovative and entrepreneurial culture, and has financed many well-known companies such as Uber, Twitter, and LinkedIn.
The news of the fine shocked many in the tech and investment communities, as it is rare for a bank of Silicon Valley Bank’s size and reputation to be penalized for such serious violations. Some stakeholders argued that the fine was excessive and unfair, and that regulators were overly focused on punishing banks instead of helping them improve their compliance efforts.
Washington, however, took a different stance. The Treasury emphasized that the fine was not just a penalty, but also a signal to the industry that non-compliance would not be tolerated. The Treasury’s Financial Crimes Enforcement Network (FinCEN), which investigated the bank’s violations, stated that “Silicon Valley Bank’s violations were particularly egregious because the Bank openly and blatantly facilitated the illicit activities of its foreign correspondent banking clients.”
Congressional members and government officials echoed this sentiment, emphasizing the need for strong and effective anti-money laundering measures to combat national security and financial crime risks. Senator Mark Warner (D-VA), incoming chair of the Senate Intelligence Committee, called for more resources and coordination among law enforcement, regulators, and industry leaders to address these challenges.
At the same time, Washington recognized the importance of innovation and entrepreneurship for economic growth and competitiveness. Secretary of Treasury Steven Mnuchin noted that “the fintech industry provides new, innovative products and services, but it also carries new and unique risks.” He emphasized the need for a balanced approach that encourages innovation while ensuring compliance with applicable laws and regulations.
Some experts suggested that the Silicon Valley Bank case could serve as a wake-up call for the fintech industry to take anti-money laundering and know-your-customer rules seriously. Many fintech startups have entered the financial services market without adequate compliance expertise or resources, and rely on partnerships with traditional banks to handle regulatory requirements. This creates a “shadow banking” system that is not fully transparent or accountable, and can be vulnerable to abuse by bad actors.
Washington’s response to Silicon Valley Bank’s non-compliance reflects its commitment to maintaining a strong and transparent financial system that supports the national interest. While it recognizes the importance of innovation and entrepreneurship, it also emphasizes the need for effective risk management and regulatory oversight. The fintech industry, and the broader financial services sector, would do well to heed this message and take proactive steps to address the compliance challenges ahead.