WASHINGTON — In a twist, compliance officers are finding solace rather than pain in a recent enforcement action from the Financial Crimes Enforcement Network.
In April, Fincen imposed a $1 million penalty on the Nevada casino Sparks Nugget for deficiencies in its anti-money-laundering program.
But instead of pointing the finger at the company's compliance officer, the agency acknowledged her repeated attempts to keep the company's procedures up to snuff.
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Observers fear state regulator Benjamin Lawsky's proposal to model anti-laundering reviews after Sarbanes-Oxley requirements could thin ranks of compliance specialists and slow monitoring.
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New York could soon start holding bank executives personally responsible for their institutions' anti-money-laundering controls, the state's top financial regulator said Wednesday.
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Compliance officers are terrified of a New York State Department of Financial Services proposal that could make them criminally liable for failings in their firms anti-money-laundering programs, according to industry representatives.
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"A strong culture of compliance is key to any financial institution's ability to comply with the [Bank Secrecy Act]. Sparks Nugget, however, lacked a culture of compliance," said the
To many compliance officers, the explicit recognition of a fellow officer's attempts to correct problems was important, particularly at a time when firms are shrinking compliance budgets and officers face rising liability risks.
"Compliance officers as a group seem to feel very threatened by the prospect of disciplinary action," said Bob Axelrod, a Deloitte Financial Advisory Services director.
The sentiment stems in part from a $1 million fine levied by Fincen against Thomas Haider, MoneyGram's former head of compliance, over the company's anti-money laundering program.
The case became a bogeyman of sorts, conjuring up the common fear of being punished for the actions --and inactions — of the real decision-makers.
"Some people feel that Haider actually got a raw deal, and that he was basically made the scapegoat of decisions that were higher than him," said Brian Monroe, the director of content at the Association of Certified Financial Crime Specialists. "If you are a compliance officer and you're trying to do your job, but you don't have a good tone at the top, you don't have senior management support and you are flatly denied--how is that still your fault?"
Compliance officers are also spooked by efforts to increase their liability risks. Fears of government retaliation were reinforced when the New York State Department of Financial Services in December
New York Banking Superintendent Benjamin Lawsky ostensibly modeled the plan after the Sarbanes-Oxley law's provisions regarding accounting fraud.
The difference, compliance officers point out, is that the 2002 federal law targets executives at the very top — not compliance officers, who don't always have a final say on how anti-laundering programs are implemented.
Because it doesn't affect those who are ultimately in control of the pocketbook and the firm's overall direction, New York's proposal will not create the right incentives, said Monroe.
"It's less precision-guided munition and more carpet bombing," he said. "It makes sense from a regulatory point of view, but it's completely unfair and I think unworkable from the compliance point of view."
The problem is possibly more acute in smaller firms with less resources to put into compliance. At such firms, compliance officers may be forced to wear several hats while facing bad actors who were turned away by larger, better-protected institutions.
"The larger banks, because of their infrastructure, they're able to quickly find technology and/ or subject matter experts," said Rose Bogan, a senior vice president at mortgage processing and compliance management company Digital Risk. But "smaller financial institutions, because of their bandwith, they're setting low thresholds with respect to their transaction monitoring."
But the Sparks Nugget case might signify a new turn for Fincen's treatment of compliance officers.
The Sparks Nugget case "clearly reflects the challenge facing BSA officers, the need for unqualified support by senior management in the new environment of threatened personal liability," said John Byrne, the executive vice president of the Association of Certified Anti-Money Laundering Specialists. "Here, Fincen recognized that the BSA officer performed [her] task, but the institution was tone deaf at the top."
The shift was a long time coming. In an
The directions had "previously been a somewhat amorphous set of concepts," said Axelrod. "This seems to be the first time they've actually taken that guidance and operationalized it."
Compliance officers are celebrating a small, but symbolic victory.
"Fincen's likely to be influential with other regulators," Axelrod said. "This is the sort of framework you could follow everywhere."
