United States: Financial Sanctions: Recent Cases, Trends And Holding Banking Executives Personally Liable For Compliance Failures

In the past year, a number of major financial institutions have been hit not just once, but twice by federal and state regulators for follow-on regulatory violations, including financial sanctions issues. Other institutions have suffered record breaking fines for Foreign Corrupt Practices Act (FCPA) and economic sanctions violations. In this environment, the Superintendent of the New York Department of Financial Services (DFS) Benjamin Lawsky announced just last week that his agency is about to propose a requirement that senior banking executives personally "sign off" on the "adequacy and robustness" of the anti-money laundering (AML) compliance programs that their firms use to spot suspicious customer financial transactions. This requirement would represent a major escalation of pressure on firms to prevent the types of serious financial crimes and abuses that have recently received significant attention.

The DFS proposal arises after a string of recent breaches that have included cases against chief compliance officers and actions against major institutions as repeat offenders. Just a few months ago, for example, the U.S. Department of Justice (DOJ) fined MoneyGram's chief compliance officer $1 million for failing to maintain adequate controls and address significant money laundering activity that occurred on the officer's watch. Further, last summer, Britain's Standard Charter PLC was hit with a second $300 million penalty after it allegedly failed to meet the requirements set in an earlier agreement that included a $340 million penalty for failing to adhere to Iran sanctions. Similarly, last fall, Bank of Tokyo-Mitsubishi received a $315 million penalty on top of a previous $250 million fine by DFS for allegedly misleading regulators about its transactions with Iran, Sudan and other countries placed under U.S. sanctions. And these amounts, while very large, pale in comparison to the landmark case of a financial institution in France, which paid nearly $8.9 billion to settle charges that it willfully continued to do business with countries and entities on U.S. Sanctions Lists, including Iran, Sudan and Cuba. It was the largest sanctions fine in U.S. history, more than four times larger than the next highest penalty.

In December 2012, HSBC paid nearly $1.3 billion as part of a deferred prosecution agreement, as well as $665 million in civil penalties after the institution was accused of conducting transactions on behalf of customers in Cuba, Iran, Libya, Sudan and Burma, all of which were, at the time, on U.S. Sanctions Lists. U.S. federal authorities claimed that HSBC helped launder $880 million in drug proceeds through the U.S. financial system. Also in 2012, ING was assessed with a $619 million penalty for moving $2 billion on behalf of Cuban and Iranian entities.

Still other prominent institutions have paid large fines, in earlier periods. In December 2009, Credit Suisse paid $536 million for customer transactions from Iran and Sudan. Law enforcement authorities claimed that Credit Suisse trained Iranian clients to falsify wire transfer orders so the messages would not be picked up by U.S. financial institution filters. Following resolution of this issue, Credit Suisse agreed to pay another $2.6 billion over tax fraud charges. Similarly, in January 2009, Lloyd's was charged with a $350 million fine related to transactions with Iranian customers. U.S. officials asserted that the transactions allowed for more than $350 million to be processed by U.S. correspondent banks that otherwise would have been rejected. In August 2010, Barclays paid $298 million for stripping wire transfer records of references to sanctioned countries in order to pass filters.

More recently, the fines and penalties have reached beyond U.S. federal and state government action. Indeed, just last month, a $67 million civil judgment against a Canadian-based bank was upheld on appeal. The case was brought by shareholders alleging that the bank allowed proceeds of money laundering to flow through client accounts. Now, it appears that HSBC is heading towards a possible second penalty assessment by the Swiss, after Swiss authorities raided HSBC's offices in Geneva, Switzerland a few weeks ago.

In addition to these high profile sanctions issues, other regulators also have been aggressive in pursuing financial institutions for other financial regulatory transgressions. In 2014, the Financial Industry Regulatory Authority (FINRA) imposed $134 million in sanctions for industry rules violations, including against some major financial institutions. These included substantial fines against several individual institutions, such as Brown Brothers Harriman, which received an $8 million fine for AML rules violations over its alleged failure to detect and investigate suspicious penny stock transactions, and a larger $43.5 million settlement with ten investment banks over their alleged promise to provide research tips in exchange for a portion of the Toys"R"Us initial public offering.

Notwithstanding the penalties already imposed, money laundering in particular remains challenging for institutions to address and prevent, given the myriad of obligations imposed through the Financial Recordkeeping and Reporting Currency and Foreign Transactions Act, the Bank Secrecy Act of 1970 (BSA), the Money Laundering Control Act of 1986 (MLCA), and the Patriot Act of 2001, enacted in the wake of the September 11 attacks, which strengthened the provisions of both the BSA and the MCLA.

These and other laws, rules and regulations already, among many other things, require financial institutions to establish sufficient AML programs; compel the Treasury to adopt regulations requiring financial institutions to establish customer identification programs; and allow the Treasury to institute special measures for financial institutions, foreign jurisdictions and "primary money laundering concerns." These requirements mean that financial institutions must keep abreast of the latest laundering techniques, vehicles and methods.

Mr. Lawsky's proposal will add more requirements for financial institutions and another significant hurdle for bank executives to meet. One significant difference in the proposal is that it will seek to hold executives personally liable in the event further major breaches come to light. It is now axiomatic that a financial institution adopt, employ and enforce a sophisticated and timely AML program as part of a sound sanctions compliance program. Institutions that engage in foreign acquisitions and mergers must also undertake stringent FCPA due diligence efforts.

The penalty leveled by the Securities And Exchange Commission (SEC) against Goodyear Tire & Rubber Company, although not a financial institution, illustrates the risks a company runs when it acquires subsidiaries or merges with companies in developing regions. The issue Goodyear faced, its subsidiaries in Kenya and Angola paying bribes to government officials to obtain lucrative contracts, is not confined to these locations or unique to Goodyear. Many companies have faced significant FCPA penalties for the acts and transgressions of subsidiaries and agents, including Avon, Alcoa, Hewlett-Packard, and Alstom. Financial institutions that seek to acquire foreign assets face similar risks and must take similar preventive and due diligence efforts.

In addition, other recent pronouncements by senior U.S. Department of Justice, SEC and UK officials clearly also reflect the need for institutions to adopt advanced, sound and comprehensive compliance and due diligence programs that are routinely tested and upgraded. Even if not completely successful, it is clear that a good faith and meaningful effort will substantially reduce any penalty that might be assessed in the event a violation does occur. Training key staff, especially in offices abroad and in merger or acquisition targets, is essential. Many of the significant violations can be traced to individuals in subsidiaries that were not aware of the rules and regulations or the potential gravity of the penalties. Now, DFS's proposal will likely require that added efforts be applied. Notably, in a speech last week at Columbia Law School, Mr. Lawsky said that his office is looking to increase its use of random audits of the automatic transaction monitoring and filtering systems at the thousands of firms it regulates.

In light of these comments, as well as the increased scrutiny from other regulatory bodies, it is time for institutions to re-examine the quality of their programs and ensure, among other things, not only that their AML and compliance systems are state of the art, but also that their key personnel understand the importance of AML compliance. Now, it is also personal.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.