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THE WASHINGTON PERSPECTIVE:  ENFORCEMENT IS ON THE RISE<br />November 3, 2010<br />Michael Volkov<br />Title<br />(202) 26...
AAGLanny Breuer of the US Justice Department’s Criminal Division<br />October 19, 2010 speech at Money Laundering Enforcem...
Warnings to Financial Institutions<br />AAG Breuer warned banks by highlighting several recent prosecutions where financia...
New Criminal Enforcement Initiatives:New Money Laundering and Bank Integrity Unit<br />Focus On<br />financial institution...
The Kleptocracy Asset Recovery Initiative<br />Target and Seize foreign corruption proceeds.<br />The Asset Forfeiture and...
Enhanced Enforcement Against Bank Individuals<br />Executives and Officers will be targeted if they “cheat, deceive or def...
Encouraging Cooperation<br />AAG Breuer urged banks and individuals to come forward and fully cooperate in order to earn “...
Case Example: Barclays Bank<br />In May 2006, Barclays voluntarily disclosed to the Office of Foreign Assets Control four ...
Small and Large Banks<br />Pamrapo Savings Bank, a small community bank in New Jersey that pleaded guilty for failing to f...
Sanctions<br />Credit Suisse admitted to systematically evading – over the course of a decade – U.S. sanctions against Ira...
As part of a deferred prosecution agreement with the Justice Department relating to this conduct, Credit Suisse forfeited ...
What You Can Count On for the Near Future?<br />Criminal Indictments of Banks  -- Large and Small -- Will Increase<br />Cr...
What Can You Do?<br />Re-Examine and Improve AML, Bank Secrecy and OFAC Compliance Programs.<br />Increase Compliance Reso...
HSBC: Recent Enforcement Actions Provide a Basic Checklist<br />Senate Permanent Subcommittee on Investigations Referred H...
HSBC: Federal Reserve and Office of Comptroller of Currency<br />OCC and the Federal Reserve required HSBC BankUSA to take...
HSBC: Specific Deficiencies in Compliance Program<br />Did not have a designated compliance officer, and combined the lega...
Wachovia Bank: $160 million<br />Wachovia Bank entered into Deferred Prosecution Agreement and paid $160 million for failu...
Wachovia Compliance Program Deficiencies<br />Financial institutions must maintain anti-money laundering compliance progra...
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The washington perspective enforcement is on the rise

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The washington perspective enforcement is on the rise

  1. 1. THE WASHINGTON PERSPECTIVE: ENFORCEMENT IS ON THE RISE<br />November 3, 2010<br />Michael Volkov<br />Title<br />(202) 263-3288<br />MVolkov@mayerbrown.com<br />20965470.1<br />
  2. 2. AAGLanny Breuer of the US Justice Department’s Criminal Division<br />October 19, 2010 speech at Money Laundering Enforcement Conference<br />Aggressive new efforts to prosecute banks and other financial institutions for money laundering and other financial crimes.<br />Trying to Recreate FCPA Enforcement Model Based on Large Fines, Individual Prosecutions, and Self Reporting <br />2<br />
  3. 3. Warnings to Financial Institutions<br />AAG Breuer warned banks by highlighting several recent prosecutions where financial institutions<br />ignored anti-money laundering compliance<br />failed to devote sufficient resources to their Bank Secrecy Act and anti-money laundering programs<br />Since 2002, the Justice Department has prosecuted at least 15 different banks – among them Lloyds, Credit Suisse, Wachovia, and Barclays. <br />In the last three years banks have forfeited nearly $1.5 billion dollars. <br />3<br />
  4. 4. New Criminal Enforcement Initiatives:New Money Laundering and Bank Integrity Unit<br />Focus On<br />financial institutions, including their officers, managers, and employees;<br />professional money launderers who sell their services to criminal organizations; and <br />those engaged in using the latest and most sophisticated money laundering techniques<br />Staff will be “prosecutors and lawyers from the banking industry.”<br />4<br />
  5. 5. The Kleptocracy Asset Recovery Initiative<br />Target and Seize foreign corruption proceeds.<br />The Asset Forfeiture and Money Laundering Section will lead it with the Office of International Affairs and the Fraud Section.<br />To recover assets on behalf of countries victimized by high-level corruption, building on the FCPA.<br />5<br />
  6. 6. Enhanced Enforcement Against Bank Individuals<br />Executives and Officers will be targeted if they “cheat, deceive or defraud”.<br />June 2010: indicted Lee Bentley Farkas, the former chairman of Taylor, Bean & Whitaker Mortgage Corporation, one of the largest private mortgage companies in the United States.<br />July 2010: Two Vice Presidents of Integrity Bank, a $1 billion financial institution, pleaded guilty to various crimes, including insider trading of Integrity stock, conspiracy to provide bogus loans in exchange for cash bribes. <br />6<br />
  7. 7. Encouraging Cooperation<br />AAG Breuer urged banks and individuals to come forward and fully cooperate in order to earn “meaningful credit”.<br />Many options are available to the Justice Department short of prosecution when a banking entity has been truly cooperative: no charges may be brought at all, deferred prosecution agreement or non-prosecution agreement, sentencing credit, or a below-Guidelines fine. <br />7<br />
  8. 8. Case Example: Barclays Bank<br />In May 2006, Barclays voluntarily disclosed to the Office of Foreign Assets Control four transactions that violated U.S. sanctions. <br />Barclays conducted a limited internal investigation and terminated all banking relationship with banks subject to U.S. economic sanctions, and banks headquartered in sanctioned countries.<br />In 2007, after a comprehensive internal investigation, Barclays shared the results of its internal investigation with federal and state prosecutors and regulators.<br />The case was resolved through a deferred prosecution agreement, a forfeiture of $298 million, and compliance by the bank for a period of two years. <br />8<br />
  9. 9. Small and Large Banks<br />Pamrapo Savings Bank, a small community bank in New Jersey that pleaded guilty for failing to file CTRs and SARs related to approximately $35 million in illegal and suspicious transactions, including more than $5 million in structured currency transactions. <br />Wachovia, which admitted in March in a deferred prosecution after admitting to allowing at least $110 million of drug proceeds to flow unimpeded through its accounts.<br />9<br />
  10. 10. Sanctions<br />Credit Suisse admitted to systematically evading – over the course of a decade – U.S. sanctions against Iran, Sudan, Burma, Libya, and Cuba. <br />Credit Suisse set up a system to deceive the United States by disguising its U.S. dollar clearing on behalf of countries that the United States had banned from our financial system. <br />Stripped out the word “Iran” from payment messages, substituted code words for Iranian customer names, and hand-check payment messages from Iran to ensure that they had been formatted to avoid U.S. sanctions filters. <br /><ul><li>Credit Suisse even trained the sanctioned entities how to avoid automated filters at U.S. banks.
  11. 11. As part of a deferred prosecution agreement with the Justice Department relating to this conduct, Credit Suisse forfeited $536 million dollars to the government. </li></ul>10<br />
  12. 12. What You Can Count On for the Near Future?<br />Criminal Indictments of Banks -- Large and Small -- Will Increase<br />Criminal Indictments of Executives and Officers Will Increase<br />More Assets Will Be Seized<br />11<br />
  13. 13. What Can You Do?<br />Re-Examine and Improve AML, Bank Secrecy and OFAC Compliance Programs.<br />Increase Compliance Resources.<br />AAG Breuer warned financial institutions. <br />to set up “an effective compliance program to detect and report suspicious activity means accruing significant expenses for technology, personnel, and training”.<br />financial institutions cannot cut corners on compliance: <br />having a compliance program that works is worth it. <br />failure to adopt and maintain a real compliance structure will have serious consequences. <br />12<br />
  14. 14. HSBC: Recent Enforcement Actions Provide a Basic Checklist<br />Senate Permanent Subcommittee on Investigations Referred HSBC for federal investigation for money laundering and Bank Secrecy violations.<br />Criminal investigation is ongoing and will result in significant penalties.<br />resulted in civil and criminal enforcement actions.<br />13<br />
  15. 15. HSBC: Federal Reserve and Office of Comptroller of Currency<br />OCC and the Federal Reserve required HSBC BankUSA to take significant corrective actions to improve itsAnti-Money Laundering compliance program. <br />30 days to submit a plan to strengthen oversight of business risk management. <br />HSBC must (1) "employ a permanent full-time" regional compliance officer for risk management; and (2) retain an outside consultant approved by the Fed to review it compliance program.<br />HSBC is still under criminal investigation by the Justice Department.<br />14<br />
  16. 16. HSBC: Specific Deficiencies in Compliance Program<br />Did not have a designated compliance officer, and combined the legal and compliance functions into one office. <br />Poor suspicious activity reporting.<br />Weak monitoring of bulk cash purchases and international funds transfers.<br />Slow and inaccurate customer due diligence concerning its foreign affiliates.<br />Slow risk assessment with respect to politically-exposed persons and their associates. <br />Controls were insufficient to screen customers and parties to various transactions. <br />Processed alerts from its own internal monitoring system slowly because of lack of manpower. <br />15<br />
  17. 17. Wachovia Bank: $160 million<br />Wachovia Bank entered into Deferred Prosecution Agreement and paid $160 million for failure of its controls to prevent drug traffickers from laundering $420 billion in drug money. <br />Wachovia accounts took in at least $373 billion in wire transfers that were made from Mexican exchange accounts.<br />$4 billion in bulk cash was shipped from Mexican exchange accounts to Wachovia <br />Wachovia also operated a "remote deposit capture" service that took in another $47 billion.<br />16<br />
  18. 18. Wachovia Compliance Program Deficiencies<br />Financial institutions must maintain anti-money laundering compliance programs and policies that are adequate to identify, analyze and report suspicious activity.<br />Wachovia failed<br />to conduct appropriate customer due diligence by delegating most of this responsibility to business units instead of compliance personnel. <br />to monitor high return rates for remotely-created checks and report suspicious wire transfer activity from the processors’ accounts.<br />Wachovia spent $42 million to improve its compliance program.<br />17<br />
  19. 19. What Needs to Be Done<br />Protect and Prevent Potential Costly Investigations and Prosecutions<br />Aggressive Techniques Will be Used<br />Undercover officers<br />Search Warrants<br />Wiretaps<br />Consensual Recordings – Telephone and Meetings<br />Compliance Programs Must be Improved<br />Relationships Must be Maintained and Improved with Regulators and Law Enforcement<br />18<br />

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