TrustedPeer Blog

What we're thinking about

Dennis Lormel
⬅︎ Back to Blog

Uncovering Fraud:  A Whistleblower's True Story of Courage in Compliance

This is the true and compelling real life story of a Bank Secrecy Act (BSA) and Bank Compliance Officer. Cathy Scharf had been recently hired by a small community bank. Shortly into her tenure at the bank, she realized something was seriously wrong. The compliance officer determined that the bank was processing an inordinate and unreasonable amount of transactions per month; well in excess of what a bank that size should have been handling. She learned that the bank was dealing with third party processors and subsequently found out that the third party processors were transacting on behalf of internet poker companies. The compliance officer knew this activity was illegal. She went to the bank president and other executives to attempt to exit the business relationships and file suspicious activity reports (SARs). Although the compliance officer continuously attempted to do the right thing, she was constantly rebuffed or misled.

What became apparent was that the tone at the top was not compliance friendly. Regardless of how dedicated and committed to doing the right thing a compliance professional is, if executive management does not adhere to a culture of compliance and exhibit the proper tone at the top, the compliance function is destined to fail. For approximately one year, the cultural conflict played out until state regulators closed the bank.

During that year, as the gripping story unfolded, the compliance officer experienced many emotions ranging from stress and sleeplessness, to intimidation, guilt and fear for her safety. In addition, she incurred legal expenses to retain a lawyer. Despite her distress, she continued to try to do the right thing. As things progressed, the compliance officer cooperated with law enforcement and regulatory authorities.

The Players

This saga contained various backstories involving a number of colorful characters. The law enforcement investigation began as an organized crime investigation into gambling. Organized crime led investigators to information regarding offshore payment processing in Costa Rica. Investigation led to third party processing; processing for a range of illicit activities to include gambling on internet poker. Most banks would not wittingly service internet poker companies. Third party processors relied on shell and shelf companies, nominees, and other mechanisms, to create the appearance that funds were being moved for licit and innocuous activities and not for illicit purposes.

There were organized crime figures in New York associated with the Gambino and Genovese families. There was Anurag Dikshit, a citizen of India, who owned PartyGaming, an internet gaming business. Dikshit pled guilty to internet gambling in December 2008, and agreed to forfeit $300 million. There was Daniel Tzvetkoff, an Australian, who made an estimated $82 million processing for PokerStars, Full Tilt Poker and Absolute Poker. In 2010, Tzvetkoff was accused by the poker companies of stealing about $100 million from them. He was subsequently arrested and agreed to cooperate with law enforcement regarding other payment processors, to include Chad Elie, a key player in the SunFirst Bank case. There were PokerStars, Full Tilt Poker, and Absolute Poker, along with their owners, who were taken down on what was known as poker’s Black Friday, April 15, 2011.

The focus of this case study is on third party processors working with an insider at SunFirst Bank to process transactions for PokerStars and Full Tilt Poker. Developments in the multi-faceted investigation led the FBI to SunFirst Bank. SunFirst Bank was a small community bank located in St. George, Utah.

The most important player in this aspect of the case is Cathy Scharf. Cathy was the BSA and Bank Compliance Officer at SunFirst Bank. Her commitment to her compliance responsibilities is a demonstration of “courage in compliance.”  

Continue Reading Cathy's story here:

If you need consulting on AML, contact TrustedPeer Expert Dennis Lormel.