Annual

Enforcement

ACTION SURVEY

Regulators Issued Fewer AML Fines in 2014, But Packed a Bigger Punch
February 13, 2015 By Colby Adams, Kira Zalan and Irene Madongo
Sometimes a decline in bank enforcement
actions isnt a good thing, even for
bankers. Such is the takeaway of a review
of enforcement action data spanning
back five years, during which the number
of formal Bank Secrecy Act penalties fell
nearly 20 percent while fines and regulatory
demands grew.
In 2014, the U.S. Treasury Department,
Federal
Deposit
Insurance
Corp.
(FDIC) and Federal Reserve Board
issued 45 enforcement actions for
anti-money laundering (AML) infractions,
an 11 percent drop from the 2013

total, according to data reviewed by

ACAMS moneylaundering.com.

Washington, D.C.-based American Bankers

Association.

The ongoing annual decline in the

number of AML-related regulatory orders
was paired again with a rise in outlays
demanded in monetary penalties. Banks
paid $351 million in 2014, or roughly seven
times the fines levied in the previous year,
excluding concurrent fines.

When the examiners come in, theyre

looking at everything in the BSA program,
said Rowe, citing discussions with the
associations members. Its being much
more carefully analyzed.
In 2014, regulators also took a tougher tack
with small financial institutions, including
money services businesses, according to
Daniel Tannebaum, a former Treasury official
and current global financial crimes sanctions
leader at PricewaterhouseCoopers LLP.

The growth in fine sizes reflects the fact

that the Bank Secrecy Act (BSA) is still very
much on the regulatory radar, according
to Robert Rowe, a vice president at the

THE TOUGHEST REGULATOR: FIVE YEARS OF DOJ COMPLIANCE SETTLEMENTS

Through prosecutions pursued and
deferred, the U.S. Justice Department
has exacted over $18 billion from financial
institutions over the last five years for
violations of sanctions, tax evasion and
money laundering laws. In 2014, the
department took in more than sixfold the
total monetary penalties it levied for such
violations in 2010.

ONE NUMBER: $13 BILLION

Total monetary settlements levied
for money laundering, sanctions and
tax evasion by the regulators and law
enforcement agencies surpassed $13.4
billion for the year, data shows.
The sum includes fines and settlements
imposed by the Office of the Comptroller
of the Currency (OCC), FDIC, the Federal
Reserve, the Financial Crimes Enforcement
Network (FinCEN), the Office of Foreign
Assets Control (OFAC), the U.S. Justice
Department, and New York state and
municipal agencies, minus redundant
penalties that were concurrently imposed.
Four international banks paid U.S.
authorities more than $300 million each,

with some shelling out significantly more.

As in previous years, the Justice Department
packed the biggest punch in 2014, largely
through its role in the nearly $9 billion
settlement in June with BNP Paribas for
willfully violating U.S. sanctions against four
nations. In January 2014, the department
shepherded a $1.7 billion settlement to
conclusion with JPMorgan Chase for its
failure to identify Bernard Madoffs Ponzi
scheme with AML controls. The settlement,
including linked agreements requiring the
bank to pay penalties to the OCC and
the trustee acting on behalf of Madoffs
investors, totaled $2.05 billion.

The New York State Department of

Financial Services (NYSDFS) also took on a
more assertive role over the year by seeking
a total $3.7 billion from five banks that
violated federal laws against tax evasion,
money laundering and sanctions busting,
and in doing so, broke state statutes.
Two banksStandard Chartered and Bank
of Tokyo Mitsubishifound themselves
paying the state regulator for the second
time in the last two years. NYSDFS dinged
the banks to the tune of $300 million or
more for failing to address or disclose
compliance issues related to their initial
settlements.

Annual

Enforcement

ACTION SURVEY

LOOKING BACK: FED, FDIC, FINCEN, OCC PENALTIES 2012-14

In the past three years, major U.S.
financial regulators issued a total of 155
enforcement actions for AML, tax and
sanctions violations with penalties totaling
in the billions.

EMPHASIS ON CULTURE
With greater emphasis than in previous
years, regulators made it clear in speeches,
guidance and enforcement actions that
senior managers and boards of directors
must take responsibility for banks AML
efforts. More than ever, federal and state
regulators sought to penalize individuals
through fines and public disclosures.

As head of OFAC in 2014, Adam Szubin

helped levy fines against six financial
institutions, including a nearly $1 billion
monetary penalty against Clearstream
Banking SA, Bank of America and BNP
Paribas.

The board and senior managements

governance and culture directly affects the
implementation of overall risk management
controls, including AML controls, said
John Wagner, a former director of AML
compliance with the OCC who retired from
the agency last year.
The penalties also extended to compliance
officers in unprecedented ways.
In December, FinCEN sued Thomas Haider,
a former chief compliance officer with
MoneyGram, for $1 million for purportedly
ignoring signs of a telemarketing scheme
that tricked Americans into wiring millions
of dollars to locations in Canada. Haider
failed to address concerns raised by other
employees about the possible complicity
of MoneyGram agents, the bureau said.
The fine is probably the most significant
enforcement action against an individual
in recent history, said Wagner. Holding
the chief compliance officer accountable
for the deficiencies of the BSA compliance
program is a significant development
within BSA enforcement.

As part of its largest-ever AML settlement,

the Financial Industry Regulatory Authority
(Finra) in February fined Harold Crawford
$25,000 for failing to properly scrutinize the
trading of six billion shares of penny stocks
during his time as the global AML chief for
Brown Brothers Harriman. The bank paid
Finra a record $8 million for knowingly
giving investors anonymous access to the
U.S. financial market.
Under terms of a NYSDFS settlement
disclosed in November, the manager
of Bank of Tokyo Mitsubishis AML
compliance officer resigned. The agency
also barred two of the banks employees
from conducting business with any New
York financial institution it regulates.
Counting actions by the U.S. Securities
and Exchange Commission (SEC), Finra
and other agencies, regulators penalized
21 individuals for AML lapses, either with
fines or restrictions on their employment.
The individuals included directors and
compliance officers at banks, money
services businesses and casinos.

Annual

Enforcement

ACTION SURVEY

KEY COMPONENTS
Many of last years enforcement actions
were predicated on shortcomings found
in each of the financial institutions three
lines of defense: business, compliance and
audit, according to Fred Curry, a principal
at Deloitte Financial Advisory Services LLP.
So what youre seeing is more and
more findings citing totally inadequate
compliance programs, which leads to
more severe enforcement actions, much
larger penalties, and much more expensive
program remediation requirements, said
Curry.
Examiners often asked about compliance
management
systems
and
audit

departments,
including
the
audit
component of compliance management
systems, according to Rowe.
Theyre looking at exactly how its
structured, what kind of systems they
have in place, the staffing that they have,
how often theyre reviewing policies and
procedures, how often theyre checking
their systems to make sure the monitoring
programs are doing what theyre supposed
to be doing, said Rowe. Its the entire
compliance program.
Regulators also made clear that the
enhanced due diligence (EDD) measures
banks implement for high-risk clients

have to be demonstrably different than

the standard due diligence procedures for
lower- and medium-risk accounts, as well
as in [know-your-customer] records, said
Vasilios Chrisos, a principal with Ernst &
Young LLP.
Theres a lot of regulatory pressure for
organizations to define the exact EDD
measures the bank will take, including
more background checks on legal entity
customers to find beneficial owners, said
Chrisos. This is especially becoming true
for casino operators who accept billions of
dollars in wire transfers each year from nonU.S. patrons, he said.

IN TROUBLE, BEHIND-THE-SCENES
Not all of the trouble banks found
themselves in made it into press releases
and headlines in 2014. Compliance
consultants and bankers contacted for
this story said that, anecdotally, regulators
handed banks more matters requiring
attention, or MRAs, and matters requiring
immediate attention, or MRIAs.

The uptick in the use of the nonpublic

regulatory orders, including memoranda
of understanding, is part of a regulatory
strategy to get the attention of banks
senior management, said Tannebaum,
citing conversations with clients.
In October, the OCC revamped the
terms under which it would follow up

on the nonpublic orders in response to

congressional criticism over its failure to
more aggressively enforce the requests.
Under the revised policy, the office
said it would more quickly issue public
enforcement actions when banks fail to
respond to MRAs.

What youre seeing is more and more findings citing totally

inadequate compliance programs, which leads to more severe
enforcement actions, much larger penalties, and much more
expensive program remediation requirements.
CONSISTENTLY HIGHER FINES
The number of AML fines by Finra also fell
last year compared to 2013.

The U.S. Justice Department in 2014

drove record outlays for financial
institutions that breached laws against
money laundering, sanctions busting
and tax evasion, in large part through
its nearly $9 billion settlement with BNP
Paribas in June.

The self-regulatory organization, which

acts on behalf of the SEC, issued 29 such
penalties in 2014, down from 34 the
previous year. The SEC last year handed
down four AML enforcement actions,
including a $5 million fine against Wells
Fargo Advisors and a separate order
targeting a former employee.
Led by the $8 million penalty assessed
against Brown Brothers Harriman in
February 2014, the fines levied last year by
Finra blew expectations for whats coming
next completely out of the water, said Bao
Nguyen, a former Finra examiner.
For the first time, youre seeing Finra
penalties consistently plow past the range
of thousands of dollars into the range of
millions of dollars, said Nguyen. Theyre
still looking at the smaller and regional

brokerages, but more and more Finra is

going after the big wirehouses, and there
is more of that in the works.
Over the year, Finra focused on two
particular issues: penny stocks and
correspondent accounts for foreign
financial institutions, said an official with the
organization who asked not to be named.
Finra had a very keen interest in foreign
customersforeign banks, mostly
holding correspondent relationships with
the broker-dealer, said Nguyen. Five
years ago, that wasnt prevalent. Now
Finras asking for the broker-dealer to
demonstrate that they have complied with
31 CFR 1010.610, which is a foreign financial
institution due diligence requirement.

ACROSS THE POND

By contrast, financial regulators in the
United Kingdom had a quiet year, with
only one AML-related enforcement action:
the Financial Conduct Authoritys 7-million
pound settlement with Standard Bank Plc
in January 2014.
But thats not to say that British regulators
have gone soft on financial crime. Rather,
the FCA is focusing more on the issue
in general and increasingly looking at
compliance controls intended to stop
money laundering, bribery and sanctions

violations, according to Michael Ruck, a

London-based senior associate with Pinset
Masons.
With regulators asking more questions
about politically-tied clients, some banks
are having to weigh up money laundering
regulatory and prosecution risks against
commercial interests, and some banks
are finding it easier and cleaner to close
accounts, he said.

The trend has made de-risking a topic in

the country, according to Ruck.
FCA officials have also signalled that they
are shifting from a remedial approach
to fines against banks, according to
Richard Burger, a partner with Reynolds
Porter Chamberlain LLP and a former
enforcement attorney with the U.K.s nowdefunct Financial Services Authority.
So we are likely to see more anti-financial
crime fines in 2015, he said.

Annual

Enforcement

ACTION SURVEY

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