United States: Dealing With High-Risk Clients And Final Advice For Maintaining An Effective AML Compliance Program

The third of a three-part series on the new landscape of anti-money laundering enforcement

Dealing with high-risk clients in an era of enhanced AML enforcement

To identify and trace criminal activity, federal law enforcement relies on the mandatory filing of suspicious activity reports (SARs) by financial institutions subject to the Bank Secrecy Act (BSA). Because of the importance of SARs to law enforcement efforts, regulators do not require—and indeed have no interest in requiring—that financial institutions refuse to maintain accounts for clients with higher risk profiles, such as certain money services businesses (MSBs).

In January 2015, Treasury Under Secretary David Cohen made this very point, remarking that through MSBs, the government has "access to crucial information that regulators and law enforcement depend on every day to prevent the abuse of the financial system." He went on to express concern that "banks have been indiscriminately terminating the accounts of all MSBs, or refusing to open accounts for any MSBs." Pointing out that regulators do not—contrary to a conclusion that some may draw from recently enhanced enforcement efforts—expect banks to be "infallible," Cohen said that what regulators do expect "is that [banks] take seriously the variety of illicit finance risks that different clients present, and assess and address those risks on a client-by-client basis." In theory, such assessment and monitoring should benefit both the institution, which is thus in a better position to comply with its SARs filing obligations, and the government, which can put the filed SARs to law enforcement use.

In practice, a heightened AML enforcement atmosphere has led financial institutions to worry that servicing higher risk clients entails a commensurate increased risk that suspicious transactions will occur without being flagged and reported, potentially leading to massive fines and other penalties. Because regulators have not imposed a bright-line prohibition on servicing high-risk businesses, financial institutions must weigh a number of factors in deciding how to service such clients without unintentionally running afoul of their BSA/anti-money laundering obligations.

The Treasury Department's Financial Crimes Enforcement Network (FinCEN), the primary regulator responsible for enforcing the SAR filing requirements, has issued guidance intended to help banks identify and appropriately assess, monitor, and comply with SAR obligations as to MSBs. While this guidance leaves a large degree of discretion to the bank to determine, based on the individual circumstances of each client, the appropriate level of monitoring and diligence, some expectations are clear.

For instance, FinCEN acknowledges that there are many different types of MSBs, offering a broad range of services to different types of customers, and that very different levels of diligence might be required from one MSB to the next depending on their risk profiles. At a minimum, however, FinCEN and other bank regulators expect that a financial institution opening or maintaining an account for an MSB will:

  • Apply the bank's Customer Identification Program
  • If the MSB is required to register with FinCEN, confirm that it has done so
  • If the MSB is required to comply with state or local licensing requirements, confirm that it has done so
  • If the client is an agent of an MSB rather than a principal MSB (and therefore not required to register with FinCEN), confirm the status as agent
  • Conduct a basic BSA/AML risk assessment to determine whether additional diligence is necessary

Additional diligence may be necessary depending on such factors as the MSB's customer base, the geographies in which it operates, the types of services it offers, the size and character of its typical transactions, and its history as a business. Of course, as with any client, an MSB that initially appears to have a low risk profile requiring only basic diligence will require reassessment if suspicious transactions by that MSB are later detected.

10 considerations for maintaining an effective BSA/AML compliance program

  1. Do not neglect operations and technology. In the control environment, increasingly, adequate AML monitoring means automated monitoring on complex platforms.
  2. Create a strong compliance culture. As discussed in the previous articles in this series, ingraining AML policies and procedures into the firm-wide business culture can only be done through a strong message from the board and senior management, as well as a strong reporting structure.
  3. Test. Ensure that policies and procedures are consistently monitoring for high-risk and potentially suspicious behavior and that alerts are effectively and consistently communicated.
  4. Audit. An independent audit function should be evaluating your AML compliance program before the regulators do.
  5. Manage risk appetite. Regularly engage in risk assessments to determine whether or not the institution's control environment is adequate to manage high-risk clients, geographies, and businesses.
  6. Document. If you haven't documented it, for purposes of your regulators, you haven't done it.
  7. Reach out to regulators. Get regulators involved before launching a new product that is of concern or that is technologically progressive. Otherwise you could find yourself subject to new requirements of which you might otherwise be unaware.
  8. Train. Regularly reassess the quality and currentness of your BSA/AML training program and tools.
  9. Evaluate the chief BSA/AML compliance officer. The chief BSA/AML compliance officer and his or her staff must be both qualified and independent. It is crucial for the compliance team to keep up with trends and changes in the regulatory environment.
  10. Incentivize. Compliance awareness should be rewarded and compliance disregard penalized. This can be accomplished, in part, by making compliance part of employees' reviews and appraisals.

Republished with permission. This article first appeared in  Inside Counsel on April 17, 2015.

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 Topics
 
Related Articles
 
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions