United States: Best Practices For AML Compliance Self-Assessments

Last Updated: October 7 2019
Article by Matthew Biben

The Bank Secrecy Act requires financial institutions to establish an anti-money laundering (AML) compliance program to prevent and detect financial crime. Failure to institute an effective program can subject an institution to significant regulatory oversight and penalties. AML compliance missteps have caught numerous banks in the United States and abroad flatfooted with inadequate compliance programs, resulting in massive fines and government scrutiny that distracts from core business missions.

Given the importance of AML compliance, financial institutions are increasingly turning to outside experts and consultants to assess the sufficiency of their AML programs. These ad hoc "assisted self-assessments"— often called "gap analyses"—are typically commissioned by chief compliance officers, senior management, or boards of directors either proactively or as a result of an unfavorable internal audit or exam findings, which can give rise to a fear of future enforcement actions. Voluntary selfassessments are important to a sustainable and vigorous AML program, but, if they're not implemented properly, these voluntary self-assessments can open financial institutions up to serious risk. Lawyers advising financial institutions and their directors should therefore think carefully about when to commence these reviews and how to manage them.

The primary risk in any AML program is straightforward: that a gap analysis actually identifies some unknown problem with an organization's AML compliance program but company officials

fail to fix the problem. This can occur when, for example, a compliance manager either fails to perceive the significance of a reported deficiency or fails to garner the resources or management support necessary for effective remediation. Needless to say, a financial institution that runs a gap analysis, finds an error, but fails to fix it is at a far greater risk of exposure—and potentially perceived culpability—than a financial institution with a similar error that never ran any gap analysis at all.

The primary risk in any AML program is straightforward: that a gap analysis actually identifies some unknown problem with an organization's AML compliance program but company officials fail to fix the problem.

A secondary risk is that an assessment identifies AML gaps that senior management disagrees are true deficiencies. In practice this happens with some understandable frequency: Although they sound technical, AML compliance programs (and assessments of their quality) are driven by human judgment. Even programs and assessments run by sophisticated algorithms or other seemingly objective mechanisms rely on human judgment in creation and implementation. Whether an identified deficiency constitutes a true problem is often in the eyes of the beholder. And some gap analysis experts may not clearly differentiate between recommendations and true errors, which means that management might perceive an expert's recommendations as "nice to have" but not "must have"—particularly given resource constraints, technological capabilities, and evolving industry standards. Unfortunately, regulators may take a different view particularly when they have previously criticized an institution's AML program.

Importantly, both of these risks are predicated on the notion that regulators may one day be able to access gap analyses and evaluate—for better or worse— a financial institution's response to any assessments. Indeed, AML program assessments are usually written, either in full report or summary form. And as such, regulators and prosecutors regularly ask financial institutions to produce gap analysis reports and subsequently use those reports— and inadequate responses to identified deficiencies—as the basis for bringing enforcement actions. Merely labeling a report "draft" or "preliminary" may not shield it from a regulatory or prosecutorial production request.

Last year's Department of Justice prosecution of Rabobank, N.A., is a textbook example of the risks attendant to commissioning (and not disclosing) gap analysis reports. According to the government, Rabobank had concealed from regulators a report written by an AML consulting firm detailing AML deficiencies at the bank. The bank had contracted with the consultant to provide an independent, written assessment of the bank's compliance program,

Competent legal counsel can assist and mitigate risks for financial institutions seeking in good-faith to comply with their federal obligations to monitor for financial crimes.

and the consultant emailed several preliminary versions of the report to the bank. Examiners from the Office of the Comptroller of the Currency (OCC) learned of the assessment from a Rabobank whistleblower and repeatedly asked bank executives for a copy, including any "preliminary or partial" assessments, but the bank failed to provide the report. That failure, along with other alleged concealments by bank executives, resulted in Rabobank pleading guilty to criminally conspiring to defraud the OCC and to obstruct the regulator's AML examination of the bank. Rabobank ultimately had to forfeit over $368 million. Press Release, U.S. Dept. of Justice, Rabobank, N.A. Pleads Guilty, Agrees to Pay Over $360 Million (Feb. 7, 2018). The bank wasn't alone in receiving punishment: The OCC imposed a $50,000 fine on the bank's chief compliance officer personally and banned him from employment in the industry. In the Matter of Laura Akhoshi, former Chief Compliance Officer, Notice of Charges for Order of Prohibition and Assessment of a Civil Money Penalty (OCC, April 16, 2018).

The Rabobank prosecution should not discourage institutions from seeking AML program assessments by outside experts. Nor should it discourage institutions from getting drafts from consultants, which can help avoid erroneous findings and prevent a consultant from misunderstanding an institution's processes, systems, or procedures. These assessments will continue to be common in the industry, driven in part by compliance officers and senior managers seeking independent validation of their programs and protection from any attempt by the government to hold individuals personally liable for AML deficiencies.

To view the full article click here.

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
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please 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