United States: BSA/AML Compliance And Litigation In The US

Last Updated: April 7 2014
Article by Christopher Laursen


Over the past several years, financial regulators have increased their focus on financial institutions' Anti-Money Laundering (AML) regulatory compliance. Since the Patriot Act was enacted at the end of 2001, US regulators have imposed more than $5 billion in monetary penalties against financial institutions in connection with alleged violations of Bank Secrecy Act (BSA) and other AML regulations. As shown in the figure below, since the end of the financial crisis, there has been a notable increase in the size of penalties, in both absolute terms and as a share of firm capital. Two-thirds of all formal enforcement actions since 2012 have included monetary penalties, compared to less than half from 2002 through 2011. Additionally, 80% of the approximately $5.2 billion in monetary penalties imposed since 2002 have been levied since 2012.

Notes & Sources: From NERA analysis of data from FinCEN enforcement actions and BankersOnline.com BSA/AML penalties list. Asset data come from FFIEC Call Reports for the quarter-end prior to the enforcement action dates. Where bank's assets are not available, parent company's assets are used. MoneyGram is excluded, as it is a moneyservices business (MSB). Bubble colors indicate primary federal regulators listed in enforcement actions. The non-shaded bubbles correspond to institutions that received cease and desist orders or written agreements with the regulatory agencies.

(1) JPMorgan Chase Bank, N.A. and Citibank, N.A. exceed the scale of the chart. (A) refers to total assets, (P) refers to penalty.

AML compliance issues identified by regulators have included failure to maintain an effective AML program, poor internal controls, inadequate due diligence, and failure to detect and report evidence of illicit activity. Compliance challenges have increased as regulators have strengthened their AML oversight, and financial institutions face a "shrinking margin of error," according to the Association of Certified Anti- Money Laundering Specialists. In addition, the prevalence of admissions of responsibility for alleged violations in recent enforcement actions has opened a wider avenue for private litigation against financial institutions, despite the lack of a direct private right of action through BSA/AML regulations.

Key Areas of Expertise

NERA provides expertise to clients undergoing regulatory investigations, subject to enforcement actions, or involved in litigation in connection with allegations of BSA/AML violations. Our team -- which includes former regulatory agency personnel -- advises financial institutions on such matters by conducting sound data analysis, determining appropriate reporting thresholds, interpreting BSA/AML laws and regulations, and assessing the appropriateness of BSA/AML processes and policies. NERA professionals use our unique qualifications to produce appropriate recommendations, as well as objective expert reports and testimony for clients.

Representative Client Experience


In 2012, a bankruptcy receiver for a defunct investment fund that maintained deposits at a large banking organization brought a suit against the bank alleging breach of fiduciary duties, negligence, and aiding and abetting fraud. The suit focused on the bank's purported failure to detect red flags with respect to various operations undertaken by the fund. In his supporting report, the plaintiff's expert alleged the bank violated BSA/AML regulations, particularly with respect to Know Your Customer (KYC) and Suspicious Activity Reporting (SAR) requirements.

Led by Senior Vice President Christopher Laursen, a NERA team evaluated the claims of BSA/AML violations in the context of relevant regulations and industry standards and practice. More specifically, Mr. Laursen reviewed the client bank's internal policies and procedures for consistency with BSA requirements and industry standards, and evaluated the actions of the bank's employees with respect to KYC and Due Diligence/Enhanced Due Diligence requirements. As a former Federal Reserve and OCC regulator, Mr. Laursen formulated expert opinions on the matter, including whether or not the bank was required to file a SAR. Mr. Laursen's report helped establish the boundaries of the client's responsibilities with respect to BSA/AML regulations and the purported fraudulent activities of the investment fund. A summary judgment favorable to the defense was issued by the court.

Regulatory Consulting

NERA provided regulatory analysis for a client alleging that a financial institution failed to report fraud and money-laundering activity according to requisite BSA/ AML standards. NERA analyzed the contemporary federal and state regulations to determine reporting requirements and helped the client pinpoint key issues. NERA also advised the client on the legal and regulatory issues related to discovery of suspicious activity reporting materials, and related freedom of information requests. The engagement is ongoing.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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