AML personal liability—what can you do?

One of the most dramatic events of 2014 in AML was the concern surrounding personal liability for compliance officers.

Why? Well, as I learned in law school, bad facts make bad law. Bad facts also make bad policy.

At least in the case brought by FinCEN and the Manhattan U.S. Attorney against the AML officer at MoneyGram, where the “facts” indicated that the officer had final authority to close accounts and discipline staff (or here, agents).

However, in what worlds do compliance officers really have that authority? Maybe Mars.

Implications of this trend

So what do we take from this?

First, the media has been harping on whether bankers are “too big to jail” without considering the distinction between actual criminal activity and compliance or risk mistakes.

Second, with the ever-changing regulatory expectations and the lack of real authority by compliance officers in many situations, are policy leaders concerned that talented AML officers will go elsewhere? They should be.

Finally, what about a corollary purge of power-crazed examiners that are allowed to second-guess risk-based AML programs and “win” only because they are the examiner?

I am tired of officials who say “show me”—when they know full well that exam overreach is a losing argument for the compliance officer.

How about in addition to “Tone at the Top” for financial institutions, we create a “culture of rationale compliance” for the regulatory community?

You want to end “derisking” and enhance financial inclusion?

Leave your egos at the door.

A practical response to MoneyGram

So, as we tilt at windmills on the issues above, how do we learn from the December action against the AML officer?

As with any enforcement action, you must compare the deficiencies noted with the type of institution you represent. Let’s look at some key facets of this action:

• Disciplinary policy. Here, MoneyGram is a money transmitter, so the parallels to traditional banks are not exactly the same. For one, the official was charged with not creating a “discipline policy” with MoneyGram’s agents. 

I’ve worked in this area for many years and yet I’m not sure what a bank Chief Compliance Officer would need to do to make the examiners happy. But one possibility is at least performance reviews that hold staff accountable for BSA mistakes.

• High-risk situations. Another charge had to do with the failure to close a “high risk” outlet displaying evidence of fraud. For banks, perhaps that could be compared to closing some high risk accounts, but what about “derisking?” Maybe not a comparison that is useful.

• Failure to file timely SARs. This is certainly a theme in many enforcement actions and frequent regulatory criticism. The problem with the theme (not the facts alleged in MoneyGram) is confusion on what constitutes “timely.”

In my humble opinion, SAR timing issues are not clear by any stretch of the imagination. This is where regulatory form over substance negatively impacts the reason for suspicious activity reports.

Note: I have to mention this—I spoke to an AML official recently who said his examiner spent three hours on one transaction where the bank documented why they had not filed a SAR. At the end of the silly marathon, the bank agreed to file. Tell me what purpose that served? The bank will default to filing on any close case. Is that the goal of the SAR regulations? I’ll answer for you: No!

• Effective audits and adequate due diligence. No argument from the AML community on this one. Whether auditing MSB agents or simply performing an audit of the institution’s AML program, these processes need to be sharp, updated, and changed when gaps are discovered.

Going forward: How can this situation improve AML?

Sadly, there remains extreme fear by the AML community on the targets now on their backs.

The comment by Manhattan U.S. Attorney Preet Bharara: “Compliance officers perform an essential function in our society, serving as the first line of defense in the fight against fraud and money laundering” should be framed in every bank board room with accompanying internal authority.

But if just lip service is paid to this situation, then all bets are off and the pressure will continue…

Read Nancy Derr-Castiglione’s blog on the MoneyGram case: “MoneyGram/Haider case: Compliance penalties get personal”

Read John Byrne’s “BSA/AML Ins and Outs for 2015”

* “Pressure”, from  Billy Joel’s “The Nylon Curtain,” 1982