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Regulatory & Enforcement Outlook For Financial Institutions

By Joe E. Edwards, Thomas B. Snyder & Daniel R. Burstein
Posted: 15th August 2013 08:55
In the wake of the 2008 financial crisis, financial institutions have seen their business practices and compliance programs subjected to more exacting scrutiny from regulators and sharper criticism from politicians, commentators, and consumers.  In recent months, there has been a spate of headlines regarding high-profile enforcement actions and record-setting penalties levied against some of the world's leading banks.  Nonetheless, leading members of Congress continue to chide federal regulators and prosecutors for a perceived "light touch" with respect to allegations of wrongdoing by financial institutions. 
With this background, the future is likely to bring ever more expansive and aggressive enforcement actions, including criminal prosecutions against financial institutions as well as the individuals who engage in or are responsible for the conduct at issue.
The Bank Secrecy Act ("BSA") requires financial institutions to assist the U.S. government in its efforts to detect and prevent money laundering.  To that end, the BSA requires financial institutions to keep records of cash purchases of negotiable instruments, file reports of cash transactions exceeding $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other illicit activity.  While enforcement of the BSA and anti-money laundering ("AML") laws was historically often a secondary focus, that is no longer the case.  They are now viewed as a critical, and sometimes primary, tool in the fight against money laundering, terrorist financing, drug trafficking, and organised crime.  Recent actions demonstrate the U.S. government's renewed focus on BSA/AML compliance. 
In 2010, the Department of Justice ("DOJ") created a specialised Money Laundering & Bank Integrity Unit to investigate and prosecute BSA/AML violations.  Leaders of the Federal Reserve, the Office of the Comptroller of the Currency, and the Financial Crimes Enforcement Network have all publicly reiterated their commitment to rigorous BSA/AML enforcement.  Recent enforcement actions demonstrate this is not empty rhetoric. 
In 2010, Wachovia Bank agreed to pay $160 million to settle charges that it failed to maintain an adequate BSA/AML program.  In December 2012, HSBC agreed to pay $1.9 billion in fines to settle allegations that its failure to maintain adequate anti-money laundering controls allowed terrorists and drug cartels access to the U.S. financial system.  There have been a large number of less publicised enforcement actions against smaller to mid-size financial institutions as well.
In the fall-out from the HSBC settlement, DOJ came under severe criticism for failing to pursue criminal penalties against HSBC or the individuals involved.  In the wake of that criticism, we expect DOJ will be keen to demonstrate its commitment to pursuing criminal charges against financial institutions and individuals.  It is imperative that all financial institutions ensure their compliance programs are adequate in light of this heightened regulatory scrutiny.  Indeed, regulators have expressed concern that as larger institutions implement better BSA/AML procedures, the riskier products and customers will migrate to smaller financial institutions, including mid-size and community banks.  The most likely targets of DOJ's future criminal enforcement actions may be these smaller to mid-size financial institutions.
BSA/AML & Anti-Corruption
There is little question that anti-corruption is a key focus of both the SEC and the DOJ.  Both have specialised units organised to handle Foreign Corrupt Practices Act and related anti-corruption issues.  BSA/AML is viewed as an integral part of those larger efforts to combat corruption.  The high profile case of Jean Renee Duperval of the Haiti Teleco corruption case is just one example in which the charges against him were based on money laundering activity rather than direct FCPA charges.  BSA/AML charges are a tool DOJ has been using more and more frequently in its fight against a wide variety of wrongdoing.
Recent developments leave little doubt that the financial services sector is coming under increased scrutiny for anti-corruption and money laundering activities.  In May, DOJ announced an indictment of two individual employees of Direct Access Partners ("DAP") for violations of the FCPA, the Travel Act and money laundering statutes.  Most notable for financial institutions is the fact that the investigation seems to have originated from a routine, periodic examination conducted by the SEC. 
For financial institutions, a key lesson from the DAP indictments is clear: routine regulatory investigations may bring to light a wide variety of potentially serious issues.  Accordingly, financial institutions must expect that regulators will be looking for evidence of broader anti-corruption issues even during these routine examinations.  Financial institutions, banks in particular, must also anticipate that their BSA/AML compliance programs may be seriously questioned in connection with other anti-corruption inquiries.  In most every corruption case, one or more banks were abused by the wrongdoers to pay the bribe money or launder the proceeds.  All financial institutions should expect their BSA/AML controls will be tested.
Effective Compliance Programs for Financial Institutions
At a minimum, financial institutions need a risk based BSA/AML program that: (1) establishes internal controls to ensure ongoing compliance; (2) designates an individual or individuals responsible for compliance issues; (3) provides training for appropriate personnel; and (4) provides for independent testing of the program in order to monitor its effectiveness.  A successful BSA/AML compliance program, however, also requires that the senior leadership establish a strong culture of compliance throughout the financial institution.  Moreover, because the hallmarks of a good BSA/AML compliance program often overlap with robust anti-corruption compliance, implementing a strong BSA/AML program has the added benefit of protecting against potential anti-corruption charges as well.  Consider the following best practices:
  • Build BSA/AML compliance measures into the performance criteria for all senior officers and business unit managers, not just those directly tasked with compliance.  All senior officers, directors, and managers should receive periodic training on BSA/AML issues and reports on the institution's compliance program.
  • Establish clearly defined channels by which compliance personnel or lower-level employees may inform board directors or senior management of potential BSA/AML violations or other compliance deficiencies.
  • Conduct appropriate risk assessments regarding new customers, business partners, services, lines of business, and/or new geographies, in order to determine whether the new business raises particular compliance concerns and whether the existing compliance program is sufficient to address those concerns.
A financial institution must be able to demonstrate to regulators that it has committed the necessary resources, in light of the risks posed by its business model, to its BSA/AML compliance program.  Doing so will help avoid the severe sanctions and negative publicity associated with inadequate AML controls, and will further bolster the institution's standing in general.  Deficiencies in AML controls are no longer seen as a mere compliance issue, but as a potential threat to an institution's safety and soundness.  The outrage over the HSBC settlement also means that there will likely be an increase in potential criminal prosecutions for institutions or individuals found to be involved in money laundering activities.  In the current environment with increased focus and a proliferation of lucrative whistleblower programs, if a financial institution is engaged in money laundering activities, it is only a question of when and how the unlawful conduct will come to light, not if.  The best protection for a financial institution, and its directors and officers, is a robust, risk-based BSA/AML program. 
Joe E. Edwards is an attorney at Crowe & Dunlevy and chair of the firm's White Collar, Compliance & Investigations practice group.  Mr. Edwards' practice includes White Collar Crime, Banking, Complex Litigation, Cross Borders Transactions and Dispute Resolution.
Mr. Edwards has authored white papers on a diverse range of subjects including Who May Sue an Accountant, Lending to Holding Companies, Lending to Indian Tribes, Check Fraud, and Lien Perfection issues.  His article titled "Participate in the Conduct of an Enterprise: Rx for RICO Liability" was published in the Oklahoma Bar Journal. 
Joe can be contacted by phone on +1 405 239 5419 or alternatively via email at
Thomas B. Snyder is an attorney in Crowe & Dunlevy's White Collar, Compliance & Investigations and Litigation & Trial practice groups.  Mr. Snyder’s practice includes managing complex business litigation such as white collar criminal defense, real estate and construction, lease negotiation and litigation, bid disputes and protests, shareholder claims, unfair competition, trademark and intellectual property, creditors rights issues, land use and general business litigation.
Mr. Snyder is a former assistant United States attorney (AUSA) for the Southern District of California. As an AUSA in the General Crimes Division, he handled a wide variety of cases involving prosecution of federal crime.
Thomas can be contacted by phone on +1 405 234 3254 or alternatively via email at
Daniel R. Burstein is an attorney in Crowe & Dunlevy's White Collar, Compliance & Investigations and Litigation & Trial practices.  Mr. Burstein's practice includes representing clients in a wide variety of litigation matters, as well as advising clients with respect to compliance policies, procedures, and training.
Prior to joining the firm, Mr. Burstein served as Assistant Attorney General at the Iowa Department of Justice, where he focused on white-collar crime and coordinated investigations with state and federal agencies.  He also served as a law clerk to the Honorable Suzanne B. Conlon, U.S. District Court for the Northern District of Illinois.
Daniel can be contacted by phone on +1 405 239 6681 or alternatively via email at

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