Bank Officers and Directors: Your “Stay out of Jail” Card is an AML Compliance Program

When it comes to fighting money laundering, the Bank Secrecy Act (BSA) is an important arrow in the government’s quiver. And it is being increasingly aimed at directors and officers who fail to establish and maintain anti-money laundering compliance programs, write Harold Reichwald and John Libby of law firm Manatt, Phelps & Phillips:

“[W]ith the easing of the financial crisis, there is an enhanced regulatory focus on the importance of strict and robust compliance by banks and other financial institutions with the provisions of the Bank Secrecy Act (BSA) to ensure that the institution’s anti-money laundering (AML) program is strong… 

Recently, however, the government has increasingly used another weapon against banks and other financial institutions, and their directors and officers – criminal charges for willfully failing to maintain an adequate compliance program as required by the BSA. While the government has used this statute against several financial institutions over the last ten years, it was the formation of the Bank Integrity Unit at the U.S. Department of Justice – announced by the Assistant Attorney General in charge of the Criminal Division, Lanny Breuer, in an October 2010 speech – that signaled the government’s new willingness to turn this powerful prosecutorial weapon on financial institutions themselves, especially those which have ‘abdicated their roles as responsible gatekeepers to the American banking system.’”

Read the full update, BSA Compliance Fails, Go to Jail: A New Challenge for Directors and Officers of Financial Institutions - Manatt, Phelps & Phillips, LLP»

FTC Hits Fraudulent Payment Processor with $1 Million Settlement

The Federal Trade Commission recently announced a $1 million settlement with Automated Electronic Checking (AEC) for processing fraudulent and unauthorized charges on behalf of its merchant clients, writes Brian Hurh of law firm Davis Wright Tremaine:

“The settlement order requires the disgorgement of nearly $1 million in fees collected from processing tens of millions of dollars on behalf of merchants (including nearly $50 million for two merchants that had already been the subject of an earlier FTC order), and bans AEC’s principals from engaging in payment processing services ‘by any means in the future.’

The FTC’s action against AEC highlights the risks involved when partnering with a service provider, especially a payments processor that has direct access to customer payment data. The problem is multiplied when other entities involved in the transaction flow – merchants, banks, technology providers, data brokers – contribute to the fraud.”

Read the full update, FTC Order Against Fraudulent Payment Processor Joins Growing List of Regulatory Actions Involving Third Party Service Providers - Davis Wright Tremaine LLP»

Responding to a Financial Crime at Your Bank

What to do when you discover a crime being committed at your bank? Make sure you don’t end up breaking the rules yourself, writes Larry Harris at law firm Polsinelli Shughart:

“The first thing to consider is whether a Suspicious Activity Report is required. The obligation to file a SAR with the Financial Crimes Enforcement Network may depend on (1) who committed the crime and (2) the dollar amount involved… Whenever a depository institution detects a known or suspected federal criminal violation (against the depository institution or involving transactions conducted through it) and there is reason to believe that a director, officer, employee, agent or other institution‑affiliated party has committed or assisted in the commission of the crime, a SAR must be filed, regardless of the dollar amount involved.”

Before you discover your worst nightmare has come true, read the full update: You Have Discovered A Crime; Now What? - Polsinelli Shughart PC»

LIBOR Prosecutions Could Spread in 2013

What’s on the horizon in the world of criminal antitrust prosecutions? From attorney Andrew Friedman of law firm Patton Boggs:

“The LIBOR rate-rigging investigation could be very active in 2013. Some banks have already agreed to massive fines arising from rigging interbank rates in ways that may have inflated the banks’ apparent financial strength during the 2008 economic crisis and beyond… Last year, UBS AG paid roughly $1.5 billion to settle allegations it conspired to rig lending rates, and Barclays paid $450 million in fines. The breadth of the LIBOR investigation and the recent news from RBS suggest that the investigation is far from over, and that this investigation will also yield significant prosecutions of individuals …” 

Read the full overview, Criminal Antitrust Update - January 2013 - Patton Boggs LLP»

Can Banks Report Suspicious Activity Without Setting Themselves Up for a Lawsuit?

Are banks and financial institutions immune from civil lawsuits relating to Suspicious Activity Reports they file? What are the limits on the Bank Secrecy Act’s safe harbor provisions?  What is the impact of the Supreme Court’s refusal to hear a case that could resolve conflicting lower court rulings on issue?

You’ve got questions – Pepper Hamilton has answers. Watch this one-hour webinar on the issues and how to reduce the possibility of legal liability.

[Link: Suspicious Activity Reporting (SAR) under the Bank Secrecy Act and Anti-Money Laundering: What You Need to Know About the Safe Harbor and Limitations to Immunity] 

This Week in Fraud: Convictions Reversed, Remanded, and Vacated

It was a good week in the appeals courts for individuals convicted of fraud. From The Kaiser Law Firm:

“The Second Circuit sent two fraud cases back for resentencing, and vacated a conviction in its entirety! And they’re cool issues — for example, for the ‘mass marketing’ enhancement under the fraud guidelines to apply, the government has to show not just that mass marketing happened, but that mass marketing happened to victims. A number of convictions were also vacated in a criminal tax prosecution, and the Second Circuit found a violation of the defendant’s public trial right.

The D.C. Circuit entered the fraud remand fray, sending a criminal copyright case back because of errors in the restitution order.”

Read all about the lawsuits: Short Wins - It’s a Good Week For Remands In Fraud Cases - The Kaiser Law Firm PLLC»

Feds Renew Focus on Financial Institutions

The government is ramping up enforcement against misconduct in the financial industry, going so far as to issue a call for whistleblowers that includes an offer of substantial rewards for relevant information. 

What’s a bank to do? A good first step: watch this webinar featuring Pepper Hamilton attorneys who address current investigative trends and what financial institutions can do should they find themselves under the feds’ microscope:

[Link: Civil Investigative Demands, Subpoenas and More: How to Prepare for the Government’s Renewed Focus on Financial Services - Pepper Hamilton LLP] 

Japan’s FSA Sanctions Investment Managers and Bank

Japanese financial regulators recently imposed administrative sanctions on two investment managers and a trust bank for breaching their “duty of care” to a client. From White & Case:

“These companies were all sanctioned in connection with asset management services provided to one particular pension fund client. According to news reports, this pension fund had delegated investment authority with respect to JPY 6.8 billion to the three sanctioned companies, directing them to invest in certain limited partnerships (toushi jigyou yugen sekinin kumiai) which would in turn, invest into unlisted shares. Upon such direction from the pension fund and without conducting any substantive review, these companies, each acting as an asset manager, made investments into such limited partnerships. When the investments eventually proved to be unsuccessful, the pension fund incurred losses of JPY 4.6 billion.

While the specific facts that the FSA found and considered differ across the cases (for a summary of the relevant facts, please see the table below), the common findings by the FSA across the cases were the (i) insufficient due diligence of prospective investments prior to the decision to invest in a limited partnership which invests in unlisted shares and (ii) insufficient monitoring of the limited partnership after the initial investment had been made.”

Read the update, FSA’s Administrative Sanctions on Investment Managers and a Trust Bank - White & Case LLP»

Sanctions on Iran: A Guide for Non-U.S. Banks

Global financial institutions based outside the United States will appreciate this overview of U.S. economic sanctions governing business activities with Iran, put together by attorney Sean Thorton at law firm Skadden Arps. Because keeping up with U.S. sanctions can be challenging – and expensive: 

“The complex U.S. framework for secondary sanctions is no longer properly understood as sanctions ‘against’ Iran, but rather U.S. sanctions against third-country companies that do business with Iran. Over the past several years, there has been a series of settlements, each exceeding $100 million, between U.S. authorities and non-U.S. banks — including ABN AMRO, Barclays, Credit Suisse, ING, Lloyds and Standard Chartered — alleging violations of U.S. sanctions against Iran and other countries.”

Read the update, Iran, Non-U.S. Banks and Secondary Sanctions: Understanding the Trends - Skadden, Arps, Slate, Meagher & Flom LLP»

U.S. Anti-Money Laundering Compliance Gets Expensive for Global Banks

What’s the cost of doing business in the United States? For global financial institutions, it’s “more.” Robert Anello at law firm Morvillo Abramowitz explains:

“The price of doing financial business in the United States has just gone up. The Department of Justice is taking a new tack in its efforts to track and prosecute money laundering that occurs through financial institutions. Rather than focusing on money laundering that results from substantive criminal violations, such as mail or wire fraud, drug crimes, or corruption, federal prosecutors are looking instead at weaknesses in the internal procedures employed by financial institutions to prevent laundering…

What does this mean for global financial institutions operating in the United States? Banks used to measuring the effectiveness of AML programs against standards established and enforced by bank regulators – in an arguably ineffective manner – will now have to consider whether their AML programs measure up to Justice Department standards or leave them vulnerable to criminal charges.”

Read the update, Financial Institutions: How Much More Will You Have to Spend on Anti-Money Laundering Programs to Avoid Criminal Prosecution? - Morvillo, Abramowitz, Grand, Iason, Anello & Bohrer, P.C.»