Bates Research  |  05-10-17

AML Enforcement: No Relief for Chief Compliance Officers


In a series of posts last year, we looked at the growing industry perception that regulators were ramping up their enforcement efforts against chief compliance officers (“CCOs”) for anti-money laundering (“AML”) violations. (See here. For additional background on regulators’ perceptions on CCO liability and how CCO’s are responding to this trend, see here and here.) At the time, several issues were impacting industry perceptions, including a proposed rule change by New York State regulators to hold CCOs personally liable for corporate wrongdoing, an ongoing dialogue within the industry about the market implications of targeted enforcement against CCOs, and the development of company strategies anticipating the necessity of mitigating those consequences.

Arguably, some of these concerns have eased on the state level. For example, the New York Department of Financial Services’ (“NYDFS”) new rules, which went into effect on January 1, 2017, removed the requirement that a covered institution’s CCO must file an annual compliance certification. The final version of the rule now provides for the filing of either a board resolution or a “compliance finding” by a senior officer with relevant responsibility. (Note: “covered institutions” must file their first certification or “compliance finding” by April 15, 2018). Also, the NYDFS dropped the threat of criminal penalties for filing an “incorrect or false” certification.

These are small but important concessions by regulators. Under the new rule, a certifying person (not necessarily the CCO) must still take all necessary steps to confirm that the now required Transaction Monitoring and Watch List Filtering Programs comply with the final rule. “Covered institutions,” therefore, must still adopt and submit annually a “finding” certifying that the institution is in compliance, and they are still responsible for potential process failures.

As to federal prosecutions for violations of prescriptive standards, CCOs continue to remain on the hook. Since the start of the year, the Financial Crimes Enforcement Network (“FinCEN”) has been active in high-profile cases against institutions that have failed to develop or maintain adequate anti-money laundering compliance programs. (See, for example, this FinCEN enforcement action as well as this one). Last week, however, FinCEN and the United States Attorney's Office for the Southern District of New York, announced the settlement of charges specifically against the former CCO of MoneyGram International. The CCO agreed to pay a $250,000 fine and is barred from performing compliance functions for any money transmitters for three years.

According to the FinCEN release, the former CCO “admitted, acknowledged, and accepted responsibility" for:

“(1) failing to terminate specific MoneyGram outlets after being presented with information that strongly indicated that the outlets were complicit in consumer fraud schemes; (2) failing to implement a policy for terminating outlets that posed a high risk of fraud; and (3) structuring MoneyGram’s anti-money laundering program such that information that MoneyGram’s Fraud Department had aggregated about outlets, including the number of reports of consumer fraud that particular outlets had accumulated over specific time periods, was not generally provided to the MoneyGram analysts who were responsible for filing suspicious activity reports with FinCEN.”

Notwithstanding some reassuring words for those CCOs doing their jobs well, Acting FinCEN Director Jamal El-Hindi expressed a strong intention to hold CCOs accountable for compliance related failures and violations of the Bank Secrecy Act (“BSA”). He emphasized the “deterrent” value to charging compliance officers who fail to prevent money laundering. Regarding Moneygram, Mr. El-Hindi stated:

"[D]espite being presented with various ways to address clearly illicit use of the financial institution, the individual failed to take required actions designed to guard the very system he was charged with protecting, undermining the purposes of the BSA. Holding him personally accountable strengthens the compliance profession by demonstrating that behavior like this is not tolerated within the ranks of compliance professionals."

While it is certain that regulators have prioritized AML activity, it is not altogether clear that such statements, and others (see, for example, Susan Axelrod’s speech delivered at a recent SIFMA AML and Financial Crimes Conference), reflect an increased intention to focus on CCOs specifically. As a result, at least with regard to the targeting of, and potential liability of CCOs, the picture is still developing. One might conclude with more confidence, however, that increased activity by numerous federal and state regulatory entities (and the new tools that these authorities are developing) suggests that firms will face increased costs to comply, defend and insure against AML related risks. These and other AML developments are sure to be discussed at the upcoming FINRA Conference.

About Bates

Bates Group LLC has been a trusted partner to our financial services clients and their counsel for over 30 years, delivering superior quality and results on a cost-effective basis.  Bates Group’s Fraud and Forensic Investigations division and AML services team offer a valuable combination of both industry and technical expertise, providing the highest possible value to our legal and financial industry clients facing internal investigations, regulatory inquiries or complex litigation.  Through our fraud prevention and deterrence services, detection and recovery expertise, forensic accounting and fiduciary services, and AML investigation and regulatory capabilities, Bates works with firms to reduce the likelihood of fraud and limit the financial, regulatory and reputational impact of fraud that has occurred.  Bates Group supports you every step of the way.

To learn more about Bates Group's services, visit us at the 2017 FINRA Conference, booth #51.


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