Why has Bank of America been fined $1.2 billion by US regulators?

US regulators fined Bank of America $1.21 billion for widespread anti-money laundering and sanctions compliance failures. The penalty will reduce third-quarter net income and requires an independent review of past transactions.

In Short

• Bank of America fined $1.21 billion for failing to report suspicious transactions
• Penalty hits bank's Q3 earnings, reducing net income by 17 cents per share
• Bank must hire third party to review past transactions and improve compliance

Bank of America has been fined $1.21 billion by US regulators for failing to detect and report billions of dollars in suspicious financial transactions, in a penalty that will also hit the bank's third-quarter earnings, reported news agency Reuters.

The US Treasury Department said the bank failed to report more than $5 billion in suspicious activity, including $1 billion linked to national security-related and other priority illicit finance risks. The penalty is the third-largest in the department's history.

The report said the bank's third-quarter results, due on Wednesday, will include a non-tax-deductible charge of $1.2 billion, reducing quarterly net income by around 17 cents per share.

The penalty comes amid regulatory scrutiny of the bank's anti-money laundering controls and follows a separate $350 million penalty imposed on American Express for similar shortcomings.

WHAT DID US REGULATORS FIND?

The Office of the Comptroller of the Currency (OCC) imposed a $750 million civil penalty on Bank of America, the largest ever levied by the regulator. The action was linked to shortcomings in the bank's anti-money laundering programme that had been identified under a 2024 cease-and-desist order.

The regulator described the bank's compliance programme as "deficient and ineffective". Its transaction monitoring system had delayed the filing of suspicious activity reports covering billions of dollars in transactions.

The Treasury Department also said the bank had prioritised revenue when building its compliance programmes and relied too heavily on external inquiries from law enforcement agencies and other financial institutions instead of its own internal controls.

Separately, the bank paid an $11.6 million fine to the Office of Foreign Assets Control for more than 400 apparent violations of sanctions programmes. The Treasury said the bank had mistakenly processed millions of dollars in payments that violated sanctions targeting countries including Russia and Iran.

Under the consent order, Bank of America must hire an independent third party to review past transactions, identify suspicious activity that the bank failed to detect at the time and report those transactions to the Financial Crimes Enforcement Network (FinCEN).

The bank said it had invested billions of dollars in technology and employed thousands of people to combat financial crime. A spokesperson said the bank was committed to completing the work required by regulators.

HOW WILL THE FINE AFFECT BANK OF AMERICA?

The $1.2 billion charge is expected to reduce the bank's third-quarter net income by around 17 cents per share. Analysts surveyed by LSEG had estimated adjusted earnings per share of $1.10, although that estimate excluded one-off items such as the penalty.

Bank of America's shares fell 2.7% in after-hours trading after closing Tuesday's session down 1.1%.

UBS analyst Erika Najarian said the penalty could add to negative investor sentiment and raise concerns about higher expenses and whether the bank could maintain its quarterly share buyback pace of around $6 billion. She also expected the shares to underperform at the market open.

However, the penalty does not include an asset cap, which would restrict the size of the bank's balance sheet and limit its ability to grow.

The fine highlights the financial and regulatory consequences of failures in anti-money laundering and sanctions compliance at large financial institutions. Banks are required to identify and report suspicious transactions to help authorities detect illicit finance and enforce sanctions.

The action also comes days after American Express was fined $350 million for similar anti-money laundering shortcomings, adding to scrutiny of compliance controls at major US financial institutions.

- Ends