AML: A US$2bn Search for the Needle in the Haystack
Finding patterns indicative of money laundering and other
financial crimes is akin to searching for a needle in a haystack. With the
increasing pressure on banks’ anti-money laundering (AML) teams, however, many
charged with this responsibility increasingly feel like they’re searching for
those needles while at the same time a combine harvester bears down on them at
full speed. These pressures include:
Regulators: Upping the
Ante
2012 saw regulators impose an unprecedented level of
fines for failure to comply with AML regulations. The year was capped with the
largest AML financial penalty the industry had yet seen, a US$1.92bn fine
levied against HSBC as per Table A below:
The fines typically correspond
with the magnitude and duration of the offenses. In TCF’s case, the offenses
were relatively minor; a result of poor quality control over the process of
filing suspicious activity reports (SARs). In the case of HSBC, the issue was a
more systematic failure of controls that resulted in HSBC enabling the movement
of billions of dollars through the financial system for terrorists, sanctioned
nation-states, and Mexican drug lords. The UK fines typically focused on
inadequate controls around PEPs; the Habib Bank fine, while small, was notable
because of the ancillary fine levied directly upon the bank’s money laundering
reporting officer.
Judging from the tenor of the rhetoric emanating from
Washington, DC, these enforcement actions should serve as a warning to all
other FIs operating in the United States. The August 2012 appointment of a
former prosecutor from the Department of Justice (DoJ), Jennifer Shasky
Calvery, as the new director of the Financial Crimes Enforcement Network
(FinCEN) sent a clear message that the focus on enforcement actions would
continue.
The Office of the Comptroller of the Currency (OCC) also
signaled its intention for more rigorous examination and enforcement activity
when the head of that agency, Thomas Curry, sat on the congressional hot seat
in March 2013 for the OCC’s perceived lax enforcement of money-laundering laws.
Comptroller Curry’s prepared remarks gave FIs a preview of coming attractions
in their annual examinations (i.e. the pain that the OCC was experiencing would
be passed downstream to the banks). The OCC is in the process of preparing
detailed guidance for FIs concerning sound corporate governance processes for
Bank Secrecy Act (BSA) compliance, including business-line accountability for
BSA compliance. This last part is particularly concerning to many AML
executives, as it has the potential to significantly increase the personal risk
associated with the job of overseeing BSA compliance for an FI.
Keeping the Regulators Happy
Table B below provides
a snapshot of the current ‘hot buttons’ for examinations by US bank
regulators:
Given the regulatory environment, FIs have to continue incrementing
what they are doing to keep the regulators happy. Here are a number of best
practices in use by FIs to accomplish just that:
Above all, it’s is important for FIs to be
nimble and responsive to changes in their environment. There is never a final
fixed destination in AML compliance. Patterns of financing change, areas of
regulatory scrutiny evolve, and to best protect the FI AML executives need to
be continually examining and evolving their own technological and manual
processes in order to achieve compliance as effectively and efficiently as
possible.