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NYDFS fines global money service $60 million for AML deficiencies
On January 4, New York Department of Financial Services (NYDFS) ordered one of the largest global money transfer services to pay $60 million for willfully failing to implement an effective anti-money laundering (AML) program. According to the consent order, between 2004 and 2012, three of the company’s New York locations allowed the company’s services to be used to pay debts to human traffickers based in China. Additionally, the order emphasizes that the company was aware of weaknesses in its compliance program for years and failed to implement controls that could have detected and prevented the payments in question. The NYDFS investigation resulted from a January 2017 settlement with the Department of Justice, which found that during the same time period (2004-2012), the company processed hundreds of thousands of transactions for company agents and others involved in an international consumer fraud scheme, as previously covered by InfoBytes. In addition to the fine, the order requires that the company put in place stricter AML compliance measures, including the creation of an Independent Compliance Committee of the Board of Directors.
NYDFS orders Korean bank to pay $11 million civil money penalty for BSA/AML compliance deficiencies
On December 21, the New York Department of Financial Services (NYDFS) entered into a consent order with a Korean bank and its New York branch to resolve issues regarding alleged deficiencies in the branch’s Bank Secrecy Act and other anti-money laundering (BSA/AML) compliance and risk management. The alleged deficiencies were discovered during three examinations between 2014-2016 by NYDFS and the Federal Reserve Bank of New York. According to the consent order, among other things, the branch failed to maintain adequate transaction monitoring and suspicious activity reporting (SAR), lacked compliance staff with proper BSA/AML background experience, and lacked adequate BSA/AML and OFAC risk assessments.
The Korean bank and its branch are required to pay an $11 million civil money penalty, and in addition must submit the following documentation (i) a BSA/AML compliance program; (ii) a customer due-diligence program; (iii) a SAR program; (iv) a revised internal audit program; and (v) a plan to enhance oversight of the branch’s BSA/AML compliance requirements. The Korean bank and branch are also required to submit quarterly reports for two years with updates on the branch’s compliance progress.
Federal Reserve Issues Consent Order to Bank for BSA/AML Compliance Deficiencies
On December 14, the Federal Reserve Board (Fed) entered into a consent order with an international bank regarding alleged deficiencies in the bank’s New York branch (Branch) Bank Secrecy Act and other anti-money laundering (BSA/AML) compliance and risk management. The consent order also relates to a 2009 written agreement among the bank, the Branch and the predecessor of the New York State Department of Financial Services, which cited BSA/AML compliance and risk management deficiencies identified by examiners in regards to the Branch’s correspondent banking services and U.S. dollar funds transfer clearing. In 2016, a Fed examination found that the bank and the Branch had not achieved full compliance with the requirements in the 2009 agreement.
The 2017 order, among other things, requires the bank and Branch to submit a written governance plan to achieve compliance with BSA/AML requirements, and to engage an independent third party acceptable to the Fed to conduct and report on a comprehensive review of Branch’s BSA/AML compliance. Within 60 days of the report findings, the bank and Branch must submit an enhanced compliance program plan, an enhanced customer due diligence program plan, and a program to ensure accurate suspicious activity monitoring and reporting.
Former Aircraft Manufacturer Sales Executive Pleads Guilty to Saudi Arabian Bribery
A former sales executive of a Brazilian-based aircraft manufacturer pleaded guilty on December 21 in connection with a scheme to pay bribes to a Saudi Arabian government official. The sales executive, a U.K. resident living in the United Arab Emirates, pleaded guilty to a count each of violating the FCPA, conspiracy to violate the FCPA, wire fraud, conspiracy to commit wire fraud, money laundering, conspiracy to launder money, and making a false statement. As part of his plea, he admitted that he engaged in a scheme to have the manufacturer pay bribes to a foreign official in exchange for assistance in getting an aircraft sales contract. The sales executive also admitted getting a kickback as part of the scheme and lying to law enforcement officials about the kickback.
The manufacturer previously paid $205 million to the DOJ and SEC in October 2016 to resolve related FCPA violations in Saudi Arabia, Mozambique, and the Dominican Republic.
OCC Recent Enforcement Actions Target BSA/AML Compliance Programs and National Flood Insurance Act Violations
On December 14, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such parties. The new enforcement actions include cease and desist orders, civil money penalty orders, removal/prohibition orders, and restitution orders. The list also includes recently terminated enforcement actions.
Cease and Desist Order. On November 9, the OCC issued a consent order (2017 Order) two days after converting a Japanese bank’s two New York branches under the supervision of the New York Department of Financial Services (NYDFS) to federally licensed branches under the supervision of the OCC. As part of the OCC’s approval process, the bank’s federal branches and New York branches agreed to the issuance of the 2017 Order, which requires adherence to “remedial provisions . . . substantively the same as those” in consent orders entered into in 2013 and 2014 with NYDFS. The previously issued consent orders addressed deficiencies related to the bank’s Bank Secrecy Act/Anti-Money Laundering (BSA/AML) sanctions compliance programs, specifically concerning the removal of key warnings to regulators on transactions with sanctioned countries.
The 2017 Order, among other things, requires the bank to: (i) submit an action plan on enhancing internal controls and updating policies and procedures to correct BSA/AML deficiencies, address provisions applicable under the Office of Foreign Assets Control’s requirements, and implement requirements outlined in the 2013 and 2014 consent orders; (ii) ensure adherence to the action plan and 2017 Order under the direction of the bank’s general manager; (iii) submit a management oversight plan designed to improve and enhance the bank’s sanctions compliance programs; and (iv) prevent the retention or future engagement of any individual identified and “barred by the 2014 Consent Order from engaging, directly or indirectly, in any duties, responsibilities, or activities at or on behalf of the [b]ank or the [b]ank’s affiliates that involve their banking business in the [U.S.].” The 2017 Order does not require the bank to pay a civil monetary penalty.
Civil Monetary Penalty. On October 10, the OCC assessed a $452,000 civil monetary penalty against a national bank lender for alleged violations of the National Flood Insurance Act and/or the Flood Disaster Protection Act. The bank agreed to pay the penalty without admitting or denying any wrongdoing.
Court Reduces Sentence for Former Cayman Islands Soccer Executive Who Pleaded Guilty in International Soccer Association Investigation
On December 12, Judge Chen of the U.S. District Court for the E.D.N.Y. amended the recent sentence entered against a former general secretary of a Cayman Islands football association. On October 31, he was sentenced to serve 15 months in prison, pay $3 million in restitution, and observe a ban from international soccer organizations. Under the amended sentence, he was credited 10 months for time served in a Swiss jail prior to extradition; the other terms remained the same.
He was arrested in Zurich in 2015, as part of the U.S. government’s investigation into corruption involving an international soccer association. Earlier this year, he pleaded guilty to a conspiracy charge, admitting that he laundered millions of dollars in bribes from sports marketing companies to his longtime associate and the former president of a continental soccer association. He is the second individual sentenced among a group of more than 40 who have been indicted or pleaded guilty since 2015. Previous FCPA Scorecard coverage of the investigation can be found here.
FinCEN Launches New Exchange to Enhance Information Sharing
On December 4, the Financial Crimes Enforcement Network (FinCEN) announced the release of the “FinCEN Exchange” program, which establishes regular briefings between FinCEN, law enforcement, and financial institutions to share high-priority information regarding potential national security threats and illicit financial transactions. Although private sector participation in the program is voluntary, FinCEN encourages involvement because the briefings may help financial institutions better identify risks and incorporate appropriate information into Suspicious Activity Reports (SARs). In addition, FinCen’s receipt of information will support its efforts to combat financial crimes, including money laundering.
The CDD Rule became effective on July 11, 2016, and member firms must comply by May 11, 2018. FINRA advises members firms to consult the CDD Rule, along with FinCEN's related FAQs, to ensure AML program compliance.
FinCEN Issues $8 Million Penalty to California Club Card for Willful Violation of Anti-Money Laundering Controls
On November 17, the Financial Crimes Enforcement Network (FinCEN) announced that it had assessed an $8 million civil money penalty against a California card club company for “willfully violating” the Bank Secrecy Act (BSA) from 2009 to 2017. According to FinCEN, the company failed to establish and maintain an operational anti-money laundering program and failed to detect and timely report many suspicious transactions. FinCEN asserts that during the eight-year period, the company failed to file any Suspicious Activity Reports regarding loan sharking and other criminal activities being conducted through the company that were the subject of a 2011 state and federal law enforcement raid. Additionally, the company allegedly failed to implement sufficient internal controls to monitor risks associated with gaming practices that allowed customers to co-mingle and pool bets with anonymity.
The penalty assessment does not reflect consent by the company, and the company may elect to contest the penalty by not paying within the allotted time period.
FINRA Provides Additional Guidance on AML Obligations
On November 21, the Financial Industry Regulatory Authority (FINRA) published additional guidance regarding member firms’ obligations under FINRA Rule 3310, which requires adoption of an anti-money laundering (AML) program. The guidance provided in Regulatory Notice 17-40 follows the Financial Crime Enforcement Network’s (FinCEN) 2016 adoption of a final rule on customer due diligence requirements for financial institutions (CDD Rule). Under the CDD Rule, member firms must now comply with a “fifth pillar,” which requires them to “identify and verify the identity of the beneficial owners of all legal entity customers” at the time when a new account is opened, subject to certain exclusions and exemptions. Additionally, the “fifth pillar” requires member firms to understand the nature and purpose of customer relationships, conduct ongoing monitoring to report suspicious activities and transactions, and maintain and update customer information “on a risk basis.”
The “fifth pillar” supplements the previously established Bank Secrecy Act AML program requirements, coined the “four pillars,” which require member firms to (i) establish policies and procedures to “achieve compliance”; (ii) conduct independent compliance testing; (iii) designate responsible individuals to implement and monitor AML compliance; and (iv) provide ongoing training.
The CDD Rule became effective on July 11, 2016, and member firms must comply by May 11, 2018. FINRA advises members firms to consult the CDD Rule, along with FinCEN's related FAQs, to ensure AML program compliance.
SEC Reaches $3.5 Million Settlement With Broker-Dealer Over Failure to File Suspicious Activity Reports
On November 13, the SEC announced it has reached a settlement in an administrative proceeding against a broker-dealer firm for allegedly willful violations of Section 17(a) of the Securities and Exchange Act, including the firm’s failure to file, or timely file, at least 50 Suspicious Activity Reports (SARs) with the Financial Crime Enforcement Network (FinCEN) from approximately March 2012 through June 2013. As the SEC Order notes, Bank Secrecy Act regulations require a broker-dealer to file a SAR if it knows, suspects or has reason to suspect that a transaction of a certain minimum or aggregated amount involved funds derived from illegal activity or if the transaction was conducted to disguise funds derived from illegal activities. Other factors requiring a broker-dealer to file a SAR include the absence of any business or apparent lawful purpose for the transaction or if the transaction is to facilitate criminal activity.
When deciding whether to accept the firm’s settlement offer, the SEC considered voluntary remedial efforts undertaken by the firm, including the fact that the firm retained a third-party anti-money laundering (AML) compliance company to conduct a review of some of the firm’s SAR investigations. Under the terms of the settlement, the firm voluntarily agreed to, among other things, conduct a review of its AML policies and procedures for the identification, evaluation and reporting of suspicious activity related to firm accounts; and provide additional training to staff responsible for conducting investigations and filing SARs. Additionally, the firm was assessed a civil money penalty of $3.5 million.