Finance Focus

Teresa (Terry) Pesce

Head of AML Services for the Americas Region KPMG LLP

Tel: +1 212 872 6272 Email: tpesce@kpmg.com

Anti-Money Laundering, USA

“Firms cannot rely solely on codified regulations to form the basis of their AML and Sanctions programs.”

T

he fight against money laundering is changing. The most obvious changes in the US in recent years have been around the step up in

enforcement activity. While in the earlier days after the enactment of the USA PATRIOT Act, we saw a flurry of enforcement actions, many of these involved more discrete programmatic aspects. For example, many of the early enforcement actions focused primarily on failures to adequately monitor for and report suspicious activity, requiring firms to undertake transaction reviews or “look-backs.” While I do not want to over-simplify these early actions, they appeared more targeted than some of the more recent actions. Recent actions seem to hit at virtually every aspect of firms’ AML programs:

from governance and oversight,

to customer due diligence, to monitoring and detection systems; to reporting; to staffing; to training; to independent testing. Regulators have seemingly raised the bar and cited firms for systemic problems. This is not surprising given the public focus on money laundering compliance generated by recent Congressional activity.

Added to core AML program concerns are issues around sanctions compliance. In recent years many institutions have been cited not only for program failures, but in some cases for intentional violations of US sanctions laws.

The result has been record fines and 42 www.finance-monthly.com

enforcement activity that involves not only civil actions brought by Regulators, for example, the Office of the Comptroller of the Currency, the Federal Reserve, FinCEN and the Office of Foreign Assets Control (OFAC), but deferred prosecution agreements entered into with criminal law enforcement authorities, like the US Department of Justice. These law enforcement authorities have promised that more actions are expected; indeed, based on recent statements from law enforcement, some institutions may not have the opportunity to enter into deferred prosecution agreements, but may face indictment absent the acceptance of a criminal plea.

Moreover, in addition to holding firms responsible for program breakdowns, authorities are promising to, and in some cases have,

targeted individuals for enforcement

action. Recently, FINRA (the Financial Industry Regulatory Authority) named an individual AML compliance officer in its action against an institution; news reports indicate that others will be held responsible and fined; and public addresses by law enforcement officials from the Department of Justice state that their investigations extend to individuals. Often those in the authorities’ sites appear not to be the front office personnel responsible for generating business, but the compliance officers tasked with keeping firms as safe as possible. Needless to say, it’s a challenging time to be a compliance officer.

In addition to strict AML regulations, firms must abide by sanctions laws and regulations enforced by OFAC. US Sanctions programs, and individuals and entities against which sanctions are imposed can change frequently, and thus firms are advised to maintain a robust and informed sanctions compliance program.

It is worth noting, however, that firms cannot rely solely on codified regulations to form the basis of their AML and Sanctions programs. In addition to reviewing published guidance from regulators (e.g. the Federal Financial Institution Examination Council’s (FFIEC’s)

US Regulation The Bank Secrecy Act (BSA) was, for many years, the primary source of AML regulation in the US. This originated in the 1970’s primarily requiring cash reporting, and evolved over the years to require, for example suspicious activity reporting for designated financial institutions such as banks. In the wake of the September 11, 2001 terrorist attacks, Congress enacted the USA PATRIOT Act (Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act)( the “Patriot Act”), which in many aspects amended the BSA. The Patriot Act and the regulations enacted pursuant to the Patriot Act not only codified certain AML program requirements, but also extended AML program requirements to a broader swath of financial institutions.