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Former MoneyGram CCO settles widely-watched AML case for $250,000, three-year ban

Friday, May 5, 2017   (0 Comments)
Posted by: Brian Monroe
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By Brian Monroe
bmonroe@acfcs.org
May 5, 2017

A widely-watched case between the U.S. Treasury and a lone compliance officer facing a $1 million individual penalty and lifetime debarment ended Thursday in a $250,000 settlement and three-year injunction, in what could be seen as a troubling precedent for the compliance profession.

The Financial Crimes Enforcement Network (FinCEN) stated that Thomas Haider, the former chief compliance officer of remitter heavyweight MoneyGram International, will pay a fraction of the penalty he faced and potentially be able to return to the compliance sector in three years after a long and costly legal battle going on since 2014.

The case has been a flashpoint issue in financial crime compliance, federal regulatory and investigative circles. Critics argued that Haider was made a “scapegoat” by the company as his requests to drop fraudulent agents were overruled by higher-ranking executives, and that the U.S. government unfairly targeted him for a rare statement-making penalty to shock other AML compliance professionals into line.

“Compliance officers perform an essential function, serving as the first line of defense in the fight against fraud and money laundering,” Acting U.S. Attorney Joon H. Kim said in a statement.

“Unfortunately, as today’s settlement shows, Thomas Haider violated his obligations as MoneyGram's chief compliance officer,” he said. “By failing to terminate MoneyGram outlets that presented a high risk for fraud and to take other actions clearly required of him, Haider allowed criminals to use MoneyGram to defraud innocent consumers.”

While Haider was loath to admit to actions in the $1 million penalty, as part of the finalized settlement, he was forced to accept responsibility for several key compliance program failures that resulted in Dallas-based MoneyGram paying $100 million in 2012, including:

  • Not terminating specific MoneyGram outlets after being presented with information that strongly indicated that the outlets were complicit in consumer fraud schemes
  • Not implementing a policy for terminating outlets that posed a high risk of fraud
  • Structuring MoneyGram’s AML program in a way that information aggregated by MoneyGram’s Fraud Department on outlets, including the number of consumer fraud reports that particular outlets had accumulated over specific time periods, was not generally provided to the MoneyGram analysts who were responsible for filing suspicious activity reports (SARs) with FinCEN. 

The settlement comes as China's Ant Financial is aggressively trying to acquire MoneyGram.

Last month, Ant upped its offer for the company by over a third, hurdling a competing offer from U.S.-based Euronet Worldwide Inc. to gain approval from MoneyGram's board, though regulatory issues and potentially national security concerns still have to be ironed out.

‘Frightening ruling’ in widely-watched case

Haider was the Chief Compliance Officer for MoneyGram International Inc. from 2003 to 2008. He headed the AML department and also oversaw the company’s fraud department, which “collected thousands of complaints from consumers who were victims of fraudulent schemes,” according to FinCEN.

The case has been scrutinized by AML compliance professionals at all levels, with rulings in the case seen as having wider aftershocks in the field at a time where compliance programs, AML officers and even external consulting agencies are under intensive pressure to craft programs that pass examiners' muster.

A ruling in January 2016 seemed to predestine the settlement this week when a U.S. district court judge in Minnesota stated compliance officers can be held legally liable for AML program failures at their institutions under Bank Secrecy Act regulations. At the time, some compliance officers called it a “frightening” development for professionals in already challenging roles.

The decision by U.S. District Court Judge David Doty was a significant blow to Haider, who is one of the rare few individuals who has ever chosen to fight an individual penalty for AML failures at their institution.

The case came in response for calls of “heads on a platter” in major frauds and financial crime cases. In recent years, the general public and media outlets have voiced a desire for more individual accountability in systemic AML, sanctions and fraud-related compliance failures that have resulted in penalties in the billions of dollars on organizations, but few jail terms.

Judge Doty made the ruling in response to a motion by Haider’s defense attorneys to dismiss FinCEN’s case against him on several grounds. They argued that AML regulations don’t grant the authority to go after individuals for corporate missteps, and that he was also denied due process, among other legal jousting.

Doty, however, disagreed on the individual liability front, writing in the 13-page order that the aspect of AML rules requiring institutions to establish money laundering detection and prevention programs is governed by the act’s broader civil penalty provision, which allows monetary actions against a “partner, director, officer, or employee.”

“The plain language of the statute provides that a civil penalty may be imposed on corporate officers and employees like Haider, who was responsible for designing and overseeing MoneyGram’s AML program,” Doty wrote in the order.

Individual liability, even when overruled

But the seemingly clear language may miss key nuances that are at play in large corporations, including when someone in a compliance capacity makes recommendations to safeguard the company, but those requests are rebuffed in the face of potential profit pitfalls.

“What really happened is Haider was crucified by his superiors,” said an individual familiar with the matter, who asked not to be named. “He was trying to get these fraudulent agents out, and he was overruled. So how can the government hold him responsible for the actions of his corporate superiors? It’s unheard of.”

While it’s unclear how the settlement occurred, FinCEN likely had “no pressure to settle,” said the person, adding that Haider was adamant that he never wanted to admit to anything, but potentially was forced to do so because of the financial hardship of fighting the case for so long and engaging expensive legal counsel.

The tension between the compliance department and management was highlighted by the MoneyGram settlement itself.

The agreement stated that in March 2007 Haider recommended MoneyGram immediately close 32 specific outlets in Canada that had high levels of reported fraud, with him calling them the “worst of the worst” and “beyond anyone's ability to doubt that the agent had knowledge and involvement.”

But at a company meeting a month later to discuss the closure of these outlets, attended by MoneyGram officers at the senior and executive vice-president level, they ultimately rejected the fraud department’s recommendation.

As well, the settlement stated that Haider refused to conduct audits on certain outlets involved in fraud and money laundering MoneyGram refused to terminate, because they were “criminal operations” and sending their audit team in to those outlets would put the audit team in “physical danger.”

In a statement acquired by Reuters, Haider said that proposals made by MoneyGram's fraud department to terminate and discipline agents at its outlets had been shot down by the sales division.

He also said that MoneyGram's AML programs were audited by state regulators more than three dozen times.

“The AML compliance program was deemed satisfactory by the regulators as well as the outside expert consultants,” he said in the statement to media outlets.


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