Lessons Learned From Recent AML and OFAC Enforcement actions

Lessons Learned From Recent Enforcement Actions
1

Overview
Why learn from enforcement actions?
Penalties
Trends
Background and history
Common Themes
2

Why are enforcement actions important?
Where regulators spend their time and energy
Learn from the mistakes of others
Can offer insight into highest risk areas
3

Trends - USA
Number of annual federal banking fines for AML violations in the US rose by nearly fourfold in 2010
Total dollar amount of the monetary penalties rose to over $660 million
Taken together, the total penalty amounts mark a 13,200 % increase from the total $5,005,000 in AML fines in 2009
13

Trends - USA
Between 2008 and 2010, the number of enforcement actions, including cease-and-desist and consent orders, rose by 261 %
14

Trends - UK FSA
Britain’s top banking regulator more than doubled its annual number of AML monetary penalties in 2010
AML fines levied solely against banks jumped 280 %, from 2.5 million GBP in 2009 to 9.5 million GBP in 2010
From 2009-2010, 250 % rise in the total fines levied
15

Trends - UK FSA
2008, FSA opened an investigation of Royal Bank of Scotland (RBS) for failing to adequately screen customers and wire transfers to shield its banks from money laundering and terrorist financing
August 2010, FSA fined RBS 5.6 million pounds, or approximately USD $9.1 million
Largest penalty ever assessed by the FSA for AML violations
16

Evolution of Enforcement
Drugs
Terrorism
Various types of financial fraud or fraudulent customer activity
Corruption
Extra-Territoriality
Impact on Foreign FI’s

Evolution of Regulatory Models
Rules
Based
Risk
Based
Principles
Based
Importance of
RISK and
Personal Liability
Increases
18

Do you feel lucky?

Well Do Ya?
OECD
FATF Blacklist – Credibility
IMF/World AML/CFT effort
IMF/FSA reports on effectiveness
IGOs/NGOs
Consolidated Supervision - Informal
Egmont – FIUs

Well Do Ya?
Regulatory Scrutiny
Regulatory Peer Pressure
Criminal Investigations - MLAT
U/C Investigations
Reverse Stings
Congressional Hearings
Areas of Concern
Quality of Regulatory Supervision

USA PATRIOT ACT
Forfeiture of Funds in an U.S. Interbank Account
Death Penalty: Cancellation of banking licenses in the U.S.
Foreign Crimes and Corruption included as SUA predicates
“Extraterritorial or Long Arm Jurisdiction” – U.S. Money Laundering Law can apply to any transaction that occurs “in whole or part” in the U.S. even if the funds involved were derived from purely foreign crimes

Beware of Rationalizations
That couldn’t happen to us!
That is something that happens to the other guy!
23

Risks? What Risks?
Over the past 10 years
More than 65 major fines and penalties worldwide
Each totaling at least more than $1 million
Other jurisdictions starting to enforce
24

Single most important lesson
What did management of all the
above companies have in common?
25

direct result of breakdowns in
Internal Controls
Compliance Tasks
Application and Use of Technology
The largest fines levied against financial institutions are the…
26

Common Themes
Usual suspects
Not deliberate non-compliance
Few Exceptions (e.g. wire stripping)
End of light touch regulation
Recent trend moving from safety and soundness, insider trading and market abuse to systemic issues
28

Common Themes
Focus on internal controls and independent testing
Look Backs are being increasingly required
Largest penalties are for serious and systemic and/or repeated violations, deliberate non-compliance
Manage the relationship with the Regulator
29

Outcomes
A written program designed to improve the bank's internal system of controls to better ensure compliance.
Separate written due diligence programs covering the reporting of suspicious activity.
Engagement of an independent consultant to review outstanding SAR reporting obligations and to recommend improved procedures;
30

Outcomes
Retrospective transaction reviews to identify and report suspicious activity that should have been reported, followed by written reports of the findings
Separate written plans addressing sanctions compliance;
Separate written plans for enhancing independent testing of the bank's AML compliance;
Separate written plans for effective AML training of all appropriate personnel.
31

Summary
Trend toward increasing number of enforcement actions
Trend toward increasing number of fines/penalties
Trend to larger settlements and larger penalties
Liability is increasing, board members are now being fined personally (Pacific National Bank)
Incarceration of board members is next!!! (Principles Based Regulation)
32

Final Thoughts
Regulatory compliance is just good business
Moral obligation
Regulatory hurdles
Pay now or pay later
Litigious environment (where your institution is sued by families of terror victims)
If you want to learn how to avoid these pitfalls, please sign up for the ½ day workshop on Wednesday morning!
33

Thank you!
34
Ken Bryant
Bryant & Associates
This presentation can be viewed at:
www.amlcft.com

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Lessons Learned From Recent AML and OFAC Enforcement actions

by Ken Bryant on Oct 04, 2011

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Lessons Learned From Recent AML and OFAC Enforcement actions — Presentation Transcript