US AML Enforcement Actions Hit Bottom in 2017

By Daniel Bethencourt and Valentina Pasquali

The number of U.S. enforcement actions citing individual and institutional violations of federal anti-money laundering rules hit a 10-year low in 2017, even as total outlays for AML regulatory penalties increased 10-fold, according to data compiled by ACAMS

The Office of the Comptroller of the Currency (OCC), Financial Crimes Enforcement Network (FinCEN), Federal Deposit Insurance Corp. (FDIC) and Federal Reserve issued 28 AML and Bank Secrecy Act-related enforcement actions last year, 30 percent fewer than their previous annual low of 41 in 2016.

“More banks and virtually all large banks are under Bank Secrecy Act and anti-money laundering consent orders, so there are less enforcement actions to take,” said Ellen Warwick, former director of enforcement and compliance at the OCC, now senior counsel with Buckley Sandler in Washington, D.C.

AML-related enforcement actions in which the four major federal banking regulators attached monetary penalties rose slightly, from nine in 2016 to 11 last year, but the combined value of those penalties exceeded $251 million after reaching just $24 million in 2016, the lowest total value since 2009.

FinCEN led federal AML regulators in total monetary penalties issued, fining overseas cryptocurrency exchange BTC-e and its owner, Russian national Alexander Vinnik, $122 million for laundering hundreds of millions of dollars for cybercriminals. The bureau collected a total of roughly $20 million in 2016.

A state regulator, the New York State Department of Financial Services, collected the most AML monetary penalties for the second year running, assessing a combined $650 million in fines against Deutsche Bank and Habib Bank Ltd., the largest lenders in Germany and Pakistan, respectively.

The $425 million penalty DFS levied against the German lender last January after its branches in London, Moscow and Manhattan helped move $10 billion out of Russia via “mirror trades” also represents the highest single outlay in 2017, with the $225 million fine disclosed in September against Habib Bank placing second.

“We’re going to continue to see these larger penalties with these enforcement actions because regulators … have to communicate the seriousness of a lack of compliance,” Fred Curry, a principal with Deloitte Financial Advisory Services in New York, said. “There’s also the issue of governance, and whether information is flowing upward to management.”

The OCC assessed a $70 million fine against Citibank late last year for not addressing compliance violations outlined in a 2012 consent order.

In February, Merchants Bank of California, a community bank with a single branch, agreed to pay $1 million to the OCC and $7 million to FinCEN for ignoring roughly $192 million of suspicious remittances and correspondent transactions.

The Federal Reserve disclosed its only AML-related penalty of the year in January 2017, fining Deutsche Bank $41 million as part of the multi-agency settlement reached with the German lender following the mirror-trading scandal.

Individuals in the crosshairs

The FDIC, Federal Reserve Board, OCC and FinCEN issued seven AML-related enforcement actions against individuals in 2017, led by FinCEN’s record $12-million penalty against Vinnik, the owner of BTC-e, in July, and a $250,000 fine against MoneyGram’s former chief compliance officer, Thomas Haider, two months earlier.

The Financial Industry Regulatory Authority, or Finra, disclosed 14 AML-related actions in 2017. Four of those actions targeted individuals, three of whom were ordered to pay a combined $65,000 in penalties.

In December, the industry regulator teamed with the Securities and Exchange Commission to collect $13 million from Merrill Lynch for, among other shortcomings, failing to monitor tens of millions of dollars-worth of transactions.

The SEC issued five AML-related actions of its own in 2017, including one against Wells Fargo’s U.S. securities branch, which agreed to pay $3.5 million for failing to report suspicious activity on at least 50 occasions from March 2012 through June 2013.

The FDIC last year fined two former employees of Banamex USA, including the now-defunct affiliate’s Bank Secrecy Act chief, a total of $100,000 for BSA violations stemming from billions of dollars in unmonitored remittances, and barred a former executive of Chicago-based Edgebrook Bank from the industry for facilitating BSA violations.

The Federal Reserve similarly banned a former vice president and a former finance executive of Birmingham, AL-based Regions Bank for engaging in fraud and money laundering, but did not levy any monetary penalties independently last year.

The OCC did not issue any enforcement actions against individuals in 2017, AML or otherwise, after issuing two the previous year.

Penalties aside, the steady, sometimes dramatic decline in U.S. AML enforcement over the past decade should not be viewed as prologue, according to Clay Porter, former acting principal deputy chief of the Justice Department’s money laundering and asset recovery section.

“What matters is what’s in the pipeline, the nature of the crime, the nature of the facts, that’s what drives the enforcement actions and the fines,” said Porter, now head of investigations and managing director at Navigant in Washington, D.C. “Some investigations take longer than others.”

Justice returns…

After a dormant year that saw no sanctions or AML-related fines or forfeitures, U.S. prosecutors returned with a bullet in 2017, collecting more than $1.1 billion combined from two financial institutions, a Cypriot legal entity and a Chinese telecom manufacturer.

In January, Western Union consented to the largest-ever forfeiture by a money services business—$586 million—for willfully failing to maintain an AML program and facilitating a multiyear fraud scheme involving 26 of its now-convicted former agents in the United States and Canada.

Shenzhen, China-headquartered ZTE Corp pleaded guilty in March to conspiring to circumvent U.S. sanctions against Iran, and, in addition to the $431 million fines and forfeitures paid to the Justice Department, paid $330 million to the Commerce Department and $101 million to the Treasury Department’s Office of Foreign Assets Control.

OFAC collected only one penalty from a lender last year: Canada’s TD Bank paid $516,000 for violating U.S. sanctions against Iran and Cuba.

Banamex USA forfeited nearly $100 million to the Justice Department for a range of offenses, including violating the BSA by using inadequate, manual processes to screen more than $8.8 billion in remittances to Mexico from 2007 to 2012. The forfeiture came two months after the FDIC disclosed monetary penalties against two senior employees of the Citigroup affiliate.

“We’ve seen a long string of institutional resolutions where banks agree to resolve criminal or regulatory charges through either a DPA or other settlement, paying large financial penalties.” said Seetha Ramachandran, former head of the Justice Department’s money laundering and bank integrity unit, now a partner with Schulte Roth & Zabel in New York. “But now there is definitely a shift toward individual accountability in these same type of cases.”

Federal prosecutors said that Banamex USA received only partial credit for cooperation because it did not submit relevant records and facts in a “timely [or] substantial” manner at the onset of the Justice Department’s investigation.

The department’s basis for limiting cooperation credit to Banamex USA seems to reference aspects of the Yates memo, 2015 departmental guidance that instructs federal prosecutors to pursue more cases against individuals suspected of involvement in a firm’s misconduct.

The memo, named after then-Deputy Attorney General Sally Yates, has not significantly changed how the department conducts investigations into alleged corporate crime, said Porter, the former acting principal deputy chief at the Justice Department.

“An individual gets prosecuted based on facts … and when you are looking at large institutions … everybody says ‘someone else did it,” said Porter. “They don’t talk via email … because they know law enforcement may find what they put in their communications.”

The monetary settlement that perhaps raised the most eyebrows last year was among the Justice Department’s smallest.

In May, Prevezon, a Cyprus-based, real-estate holding firm controlled by Russian oligarch Denis Katsyv, paid only $5.9 million to resolve U.S. money-laundering charges stemming from a $230-million tax fraud uncovered by now-deceased Muscovite attorney Sergei Magnitsky.

Federal attorneys in New York claimed Katsyv’s companies used millions of dollars of proceeds from the fraud to buy commercial and residential properties in Manhattan, but abruptly agreed to conclude their case three days before trial.

“We are seeing more use of real estate, of securities or stocks, mutual funds, things like that, to launder, instead of just depositing money in banks,” Douglas Leff, special agent in charge of the FBI’s division in San Juan, Puerto Rico, said. “The end game is laundering the funds into real estate or stocks, or buying and selling those first to create a paper trail for the bank.”

Colby Adams, Kieran Beer, Larissa Bernardes, Laura Cruz, Silas Bartels and Sonal Bhatnagar contributed to this article.

Topics : Anti-money laundering , Counterterrorist Financing , Money Services Businesses , Securities
Source: U.S.: Department of Justice , U.S.: FinCEN , U.S.: Federal Reserve Board , U.S.: OCC , U.S.: FDIC , U.S.: NYS Department of Financial Services , U.S.: Finra (NASD/NYSE) , U.S.: SEC
Document Date: April 3, 2018