Why Did Political Campaigns Suddenly Start Banking At Evolve?
Why Did Political Campaigns Suddenly Start Banking At Evolve?
Disgraced Rep. George Santos Was One Of 32 Republican Campaigns With Accounts At Evolve Bank & Trust
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If you enjoy reading this newsletter each Sunday and find value in it, please consider supporting me (and finhealth non-profits!) by signing up for a paid subscription. It wouldn’t be possible to do what I do without the support of readers like you!Why Did Political Campaigns Suddenly Start Banking At Evolve?
According to Federal Election Commission filings, seemingly no campaign for federal office had used Evolve Bank & Trust until 2019 — but, by the 2022 election cycle, as Republicans were seeking to recapture control of the House of Representatives, 29 Congressional candidates and PACs supporting them reported having accounts there.
The sudden interest from campaigns in banking with Evolve is notable as accounts tied to political figures can entail higher risk for financial crimes, including bribery and money laundering.
And these risk aren’t purely theoretical.
Disgraced New York Congressman George Santos pleaded guilty last month to wire fraud and aggravated identity theft related to his campaign. Tennessee Congressman Andy Ogles recently had his phone seized by the FBI as part of a probe into his campaign finances.
Both campaigns reported having accounts at Evolve Bank & Trust.
Of course, a political campaign, like any organization or business, needs a bank account to operate. In the modern political era, particularly post-Citizens United, money is the lifeblood of any campaign.
Political parties, campaign committees for federal, state, or local office, and political action committees (PACs) are generally considered tax-exempt “political organizations” under part 527 of the IRS code.
But political campaigns and their associated committees have rather unusual characteristics from a banking perspective: their lifespan may last only an election cycle (especially if the candidate loses), their income typically takes the form of regulated donations, and their expenditures tend to be extremely seasonal, with the bulk of funds being spent in the last few months leading up to election day.
Recognizing the unique risks for financial crime posed by public officials — not just candidates running for office — the Financial Action Task Force (FATF), a supranational body that formulates policies to combat money launder and the financing of terrorism, has recommendations that speak specifically to “politically exposed persons,” or PEPs.
The FATF’s recommendations inform and attempt to harmonize jurisdiction-specific laws and regulations on anti-money laundering and countering the financing of terrorism (AML/CFT) practices.
The FATF guidelines define a PEP as “an individual who is or has been entrusted with a prominent function” and notes that “[m]any PEPs hold positions that can be abused for the purpose of laundering illicit funds or other predicate offences such as corruption or bribery.” Because of these higher risks, the FATF guidelines recommend additional AML/CFT measures for accounts associated with these individuals.
According to the FATF’s guidelines, “[f]or domestic PEPs and international organisation PEPs, financial institutions must take reasonable measures to determine whether a customer or beneficial owner is a domestic/international organisation PEP, and then assess the risk of the business relationship.”
Fulfilling this recommendation is predicated on financial institutions having a robust and effective customer due diligence process such that they can accurately identify, verify, and monitor their customers.
Regardless of the account type, consumer, business, or other kind of organization, a financial institution should take reasonable measures to determine if the customer or beneficial owner is a PEP, the FATF suggests.
Exact legal definitions vary by jurisdiction, but if the customer or beneficial owner is determined to be a PEP and the business relationship is considered to be higher risk, a financial institution, per the FATF guidelines, should:
obtain senior management approval for establishing (or continuing, for existing customers) such business relationships;
take reasonable measures to establish the source of wealth and source of funds; and
conduct enhanced ongoing monitoring of the business relationship.
These requirements also typically extend to the family members and close associates of PEPs.
Unless you work in the AML/CFT field, it’s likely you’ve never heard of the term PEP.
While the term does pop up in regulatory exam manuals, it actually isn’t defined in US law or regulation, and the concept is functionally subsumed within the “risk-based approach” that typifies AML/CFT compliance in the US.
In fact, interagency guidance issued in 2020 specifies that US federal banking regulators “do not interpret the term ‘politically exposed persons’ to include U.S. public officials.”
The most similar terminology in US AML/CFT law and regulation is the concept of a “Senior Foreign Political Leader,” which, by definition, also excludes US politicians (emphasis added):
The final rule defines a “senior foreign political figure” as: a current or former senior official in the executive, legislative, administrative, military, or judicial branches of a foreign government, whether or not they are or were elected officials; a senior official of a major foreign political party; and a senior executive of a foreign government-owned commercial enterprise.
This definition also includes a corporation, business, or other entity formed by or for the benefit of such an individual. Senior executives are individuals with substantial authority over policy, operations, or the use of government-owned resources.
US regulation calls for “enhanced scrutiny” of private banking accounts tied to senior foreign political figures that includes “procedures reasonably designed to detect and report transactions that may involve the proceeds of foreign corruption.”
Customer due diligence rules (CDD) do not require US financial institutions to specifically screen for whether a customer or beneficial owner is a PEP. Rather, banks must have appropriate “risk-based” procedures to understand the nature and purpose of customer relationships and to develop a customer risk profile in order to effectively mitigate risks that customers may pose.
To the extent a bank does identify a customer or beneficial owner as a PEP, the FFIEC BSA/AML examination manual suggests the following information could be helpful in assessing AML/CFT and other illicit financing risk:
The type of products and services used
The volume and nature of transactions
Geographies associated with the customer’s activity and domicile
The customer's official government responsibilities
The level and nature of the customer's authority or influence over government activities or officials
The customer's access to significant government assets or funds
Of Thirty Two Campaigns Banking At Evolve, Only One Was Geographically Proximate To The Small Arkansas Bank
Unsurprisingly, political campaigns are highly networked entities: they tend to share overlapping staff, including the campaign treasurers who sign off on FEC filings, vendors, and, yes, banks.
Given the unusual transaction patterns and higher risks tied to campaign accounts, many banks, even large moneycenter banks like JPMorgan Chase or Citibank, may turn away this business. This also contributes to campaigns clustering at a number of banks, with a pronounced party split.
For instance, DC-area Chain Bridge Bank, founded by former Republican Illinois Senator Peter Fitzgerald, is a common choice for federal Republican campaigns. And union-owned Amalgamated Bank, which bills itself as “America’s Socially Responsible Bank,” is a favorite of federal Democratic campaigns.
Another common choice for campaigns is a local bank, whether a branch of a large national bank, like Wells Fargo, or a community bank or credit union.
So it’s notable that Evolve, which, per a review of available FEC records, had no accounts associated with federal campaigns before 2019, has been linked to 32 candidates or committees since then.
A representative for Evolve did not respond to questions about if the bank served political campaigns prior to 2019 or if it has intentionally pursued a strategy of providing banking services to campaigns.
Apart from Rep. Andy Ogles, a Republican from Tennessee’s 5th Congressional district, none are geographically proximate to West Memphis, Arkansas, where Evolve is based.
According to FEC records, campaigns from as far afield as California, Oregon, Arizona, New York, and New Hampshire had accounts at Evolve.
The geographic locations are not the only unusual aspect of these campaigns’ filings.
Many of the campaigns, all of which are Republican, had accounts at numerous banks, with one, the Committee to Elect Jennifer-Ruth Green, in Indiana’s first Congressional district, listing seven financial institutions on its June 2021 FEC Form 1 filing.
A campaign finance expert Fintech Business Weekly spoke with found the number of discrete banking relationships unusual, as it increases the complexity of managing a campaign’s finances and, they said, once a campaign or treasurer finds an bank they like working with, they tend to stick with it.
During the 2022 cycle and through the most recent filings for the 2024 elections, campaigns, excluding PACs, associated with accounts at Evolve have reported total receipts of over $150 million.
Red Flags Go Beyond Santos, Ogles
The sudden interest from Republican campaigns in banking at Evolve is noteworthy but not, by itself, necessarily a red flag.
However, some of the individuals associated with those campaigns, including candidates and treasurers responsible for preparing campaign accounts and signing off on FEC filings, indicate higher levels of risk.
Most notably, disgraced now-former New York Congressman George Santos’ campaign listed an account at Evolve in a 2022 FEC filing.
About three weeks ago, Santos pleaded guilty to wire fraud, filing fraudulent FEC reports, embezzling funds from campaign donors, charging donors’ credit cards without authorization to do so, aggravated identity theft, unemployment benefit fraud, and lying in a report to the House of Representatives.
Santos has yet to be sentenced, but faces a minimum of two years and a maximum of 22 years in prison. The plea deal will also see Santos pay more than half a million dollars in restitution and asset forfeiture.
Santos isn’t the only one implicated in the scheme, however. Nancy Marks, Santos’ campaign treasurer, also pleaded guilty to conspiring with Santos to commit wire fraud, make false statements, obstruct the administration of the FEC, and to commit aggravated identity theft. She faces up to five years in prison, restitution, and a fine.
Although Marks was listed as treasurer in Santos’ FEC filings, another Republican operative, Thomas Datwyler, served as a “shadow treasurer” to Santos’ campaigns, per previous reporting.
In the course of an ethics inquiry, FEC probe, and criminal investigations into Santos, a lawyer representing Datwyler took the highly unusual step of retracting statements the lawyer made, “telling the FEC that he acted as an unwitting middleman, ferrying false information from his client and inaccurately disavowing Datwyler’s campaign role.”
Santos also has been linked to Andrew Intrater, an American business man and cousin of sanctioned Russian oligarch Viktor Vekselberg. Santos has claimed one of Intrater’s businesses was a “client” of his, and Intrater donated a total of $24,300 to Santos’ campaign and related committees.
The Santos matter is hardly the only controversy Datwyler has been tied to. He’s faced numerous complaints to and fines from the FEC for allegedly violating campaign finance reporting requirements in his roles as treasurer for multiple Congressional campaigns.
The Mississippi attorney general is investigating Datwyler for potential criminal violations of state election law.
And a Republican super PAC in Nevada has filed a complaint with the Department of Justice, accusing Datwyler of wire fraud. The complaint, filed this July, states in part (emphasis added):
“Datwyler has a long history of running roughshod over federal campaign finance law and the regulations of the FEC, where he has repeatedly filed or caused to be filed false reports with the [FEC]. Datwyler’s knowing, willful, and intentional conduct, which has drawn repeated FEC fines, has and continues to cause substantial harm to our electoral process. As detailed below, Datwyler’s recent conduct has become even more out-of-control.”
Santos isn’t the only campaign that banked at Evolve that Datwyler has been linked to.
Datwyler also served as treasurer or agent on the campaigns of Anthony D’Esposito, Scott Gryder, Nick LaLota — and Andy Ogles.
Andy Ogles had made several failed attempts to run for state office and a US senate seat in Tennessee before his successful bid to represent Tennessee’s 5th district in the US Congress in the 2022 cycle.
Ogles’ campaign finance filings — prepared and signed off on by treasurer Datwyler — raised questions about where he got his money: specifically, a $320,000 “loan” Ogles claimed he had made to his own campaign, even though his personal financial disclosures suggested he wouldn’t have had the means to do so.
Last month, the FBI reportedly seized Ogles’ phone as part of a federal campaign finance probe, according to a lawyer representing Ogles.
Ogles’ campaign listed accounts at First Horizon, ServisFirst, Chain Bridge, and Evolve. But the account Ogles had at Evolve seemingly isn’t the campaign’s only link to the troubled bank.
An April 2023 donation to Ogles’ campaign was flagged as apparently “excessive, prohibited [or] impermissible” as it appeared to come from now-bankrupt Synapse Financial Technologies, Evolve’s long-time partner.
Synapse cofounder and former CEO Sankaet Pathak commented on social media that the donation didn’t come from Synapse, but rather a client of Synapse, saying “the wire header was incorrect.”
Intentionally removing or altering identifying information associated with a wire transfer is known as “wire stripping” and is generally illegal.
Ogles’ and Santos’ treasurer Datwyler isn’t the only finance official tied to numerous campaigns that bank at Evolve.
Bradley Crate, founder and president of Republican campaign finance compliance firm Red Curve Solutions, is listed as treasurer for the campaigns of John James and Laurel Lee. A vice president at Red Curve, Jason Young, is also listed as treasurer for Lori Chavez-DeRemer.
Crate and his firm have an extensive history in Republican campaigns and fundraising, dating at least as far back as Crate’s role as CFO for Mitt Romney’s ill-fated 2012 campaign against then-President Barack Obama.
Crate and Red Curve are a prolific presence in Republican campaigns, serving as treasurer for more than 200 federal campaigns and committees — including former President Trump’s 2016 campaign. Crate has also worked in various roles with committees Trump Victory and Trump Make America Great Again.
But Crate and Red Curve haven’t been without controversy.
A complaint filed this April against Trump, his committees, Crate, and Red Curve allege that they colluded to conceal $7.2 million in payments for legal fees by routing them through an unaffiliated shell company in violation of campaign finance law.
The complaint also alleges Crates’ Red Curve advanced payments for the legal expenses, in potential violation of campaign finance laws that prohibit corporations from giving money to candidates.
A representative for Evolve didn’t respond to questions about if the bank has ever had concerns about specific political campaigns’ financial activities or transactions conducted through Evolve
History Suggests Evolve’s Compliance Controls Weren’t Fit For Purpose
As with other kinds of higher-risk customers, it isn’t that banks can’t serve campaigns — only that they need to have proper risk-based policies, procedures, and systems in place in order to detect and mitigate those risks.
There is ample reason to believe Evolve didn’t.
Evolve’s history of working with problematic partners and other compliance and regulatory shortcomings caught up with the bank in the form an enforcement action this June.
The cease and desist order from Evolve’s primary federal regulator, the Federal Reserve Board, reveals severe shortcomings in Evolve’s BSA/AML and OFAC compliance, including requiring the bank to:
strengthen board oversight, including of BSA/AML and OFAC compliance
correct information technology and information security deficiencies
enhance the bank’s internal audit program
retain an independent third party to review the effectiveness of the bank’s compliance with BSA/AML requirements
develop a BSA/AML compliance program that is acceptable to the bank’s Supervisors, including independent testing procedures and staffed by a qualified compliance officer
develop a customer due diligence (CDD) program that is acceptable to the bank’s Supervisors, including policies, procedures, and controls to ensure the bank collects, analyzes, and retains complete and accurate information for all customers
engage a third party to evaluate the effectiveness of the bank’s transaction monitoring system
implement an interim transaction monitoring process for higher-risk international wires
develop a program that reasonable ensures the timely and accurate reporting of suspicious activity
develop a written plan to ensure the bank’s OFAC regulations, including screening procedures and a methodology for assessing OFAC risks
Prior reporting from Fintech Business Weekly sheds some light on what may have contributed to those requirements, including that Evolve allegedly had not run OFAC checks correctly for a period of as long as seven years and dozens of higher-risk accounts that appear to be of foreign origin opened using registered agent addresses in the United States.
Evolve’s cybersecurity weakness were also exploited by a Russian ransomware group, Lockbit, in hack that saw data on millions of the bank’s customers released on the darkweb. The bank is facing dozens of lawsuits from the incident in what is likely to become a class action case.
A representative for Evolve didn’t respond to questions about what additional due diligence steps, if any, Evolve takes during initial onboarding and ongoing monitoring for accounts and transactions of political campaigns.
There are adequate signs that Evolve’s approach to meeting BSA/AML requirements, both for its own customers and through its fintech programs, has not been fit for purpose.
But Evolve is but one of more than 4,500 banks in the United States, plus about another 4,500 credit unions, not to mention seemingly countless fintechs and other types of non-depository financial businesses, most all of which have some kind of AML compliance obligation.
It’s estimated that the amount of money laundered annually is equivalent to almost 5% of global GDP, with less than 1% of illicit transactions being seized by authorities.
While money laundering is sometimes thought of as a victimless crime, it is anything but. And in a political system where money is power, failing to adequately police financial crime may be putting democracy itself at risk.
A representative for Evolve Bank & Trust didn’t respond to questions or a request for comment prior to the time of publication.
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