2018 financial penalties

When looking back at the topsy-turvy world of compliance in 2018, there are several themes that leapt across borders and linked domestic and foreign financial crime compliance enforcement actions, investigations and regulations: remediation renovation, technological innovation and international cooperation.

Those issues and focal points are borne out in ACFCS editorial coverage, with the 10 most popular stories hitting on how some banks formerly seen as compliance pariahs have become law enforcement allies, while other jurisdictions with seemingly stellar reputations saw their banks subjected to record anti-money laundering (AML) penalties.

In several U.S. and foreign enforcement actions, banks saw heftier fines, and even secondary penalties, for not remediating their AML programs fast enough or to the degree of depth examiners wanted to see – resulting in aftershocks nearly as damaging as the original action.

Conversely, large institutions taking remediation to the next level – beyond simply the letter of the law, but the spirit of the law – saw some banks aggressively engage in both advanced training and technology, including adopting artificial intelligence, to clear herculean regulatory hurdles and shed the shackles of seemingly inescapable remediation engagements.

Such a radical commitment to compliance could become the new norm in 2019 as regulators and investigators beyond the U.S. follow the muddied financial trails of illicit organized criminal groups and oily oligarchs – shadow entities partially brought to light in recent historic leaks – to find out where they bank and levy AML enforcement orders, in some cases in concert with foreign authorities.

As banks battled external and insider threats, executive-level upheaval spread to financial crime compliance departments, with some of the top minds and thought leaders in the financial crime compliance space now out of a job due or are on their own to the need for institutions to appease regulators with broad and deep risk management changes.

Indeed, as the new year dawns, some banks have said out with the old and in with the new – even though that could mean the cumulative loss of decades of financial crime compliance experience. Here are the top 10 ACFCS stories that most connected with readers:

HSBC hits major regulatory milestone in unwrapping overlapping AML actions as fed drops C&D order

In this story from August, the U.S. operations of London-based HSBC hit a key regulatory milestone as one of the plethora of regulatory agencies that has chastised the institution in the past for financial crime failings has terminated one of the many overlapping orders, penalties and agreements the bank has been juggling.

The Federal Reserve announced at the time it had terminated a cease-and-desist order it leveled against HSBC – this one hanging around for nearly a decade and predating a later historic compliance penalty by two years.

The move was further validation that the bank’s anti-money laundering (AML) program was building positive momentum through investments in top talent, new systems and core philosophies.

The original prescriptive 12-page action issued by the Federal Reserve in October 2010 ordered the bank to strengthen board oversight, review documentation and decision-making around suspicious activity reports and engage in a broad and detailed compliance risk assessment.

The Fed order exhorted HSBC to retool how it crafts customer, jurisdiction and other risk scores and better pair with the proper depth of corresponding controls, just to name a few. Those, and other problems, led to HSBC paying federal regulators and investigators $1.9 billion in a December 2012 deferred prosecution agreement (DPA). To read the full story, click here.

Netherlands’ largest bank to pay nearly $1 billion to Dutch authorities in historic AML settlement

In this September story, ACFCS reported that the Netherlands’ largest financial institution would pay Dutch authorities 775 million euros, or $900 million, in a historic settlement for broad failures in its financial crime compliance controls that allowed illicit groups to launder an estimated hundreds of millions of dollars for years.

ING Groep admitted at the time to “serious shortcomings” in its anti-money laundering (AML) programs that allowed criminals to launder money “for years,” according to bank statements and government documents. In the settlement agreement with the Dutch Public Prosecution Service, ING agreed to pay a fine of €675 million and €100 million for disgorgement.

The bank violated laws created to stop terror groups and illicit financiers “structurally” by failing to adequately investigate aberrant transactions highlighted by monitoring systems and by giving short-shrift to source of funds and beneficial ownership obligations chiefly through poor customer due diligence (CDD) policies between 2010 and 2016, according to the actions.

The penalty wasn’t the bank’s first rodeo with authorities for AML and sanctions foibles. In 2012, ING paid $619 million to U.S. authorities for moving billions of dollars through the American financial system for blacklisted Iranian and Cuban clients. To read the full story, click here.

NYDFS fines Mashreqbank $40 million on AML, OFAC failures, must review prior clearing activity

In this October story, ACFCS reported that Gotham’s banking regulator penalized the New York branch of the largest and oldest bank in the United Arab Emirates $40 million for a host of financial crime compliance deficiencies, including lax oversight of dollar clearing portals for high-risk countries, monitoring and reporting on suspicious activity and policies for dealing with rogue regimes.

The New York State Department of Financial Services (NYDFS), which worked in concert with the Federal Reserve, also at the time required that Dubai-based Mashreqbank hire an outside consultant to engage in a transactional lookback to find any missed instances of aberrant activity during a six-month period in mid-2016.

The penalty continued a trend of federal and New York regulators focusing on foreign banks with operations in the United States that also have sprawling correspondent banking networks – particularly those with connections to banks in regions to be at a higher risk for money laundering, corruption or terror finance.

For instance, Mashreq’s New York branch offered correspondent banking and trade finance services and provided U.S. dollar clearing services to clients located in Southeast Asia, the Middle East and Northern Africa – regions that “present a high risk in connection with financial transactions,” the NYDFS stated in the action. To read the full story, click here.

In historic first, former Loyal Bank executive pleads guilty to failing to comply with Fatca

In this September story, ACFCS reported that federal authorities secured a guilty plea involving Adrian Baron, the former Chief Business Officer and former Chief Executive Officer of Loyal Bank Ltd, for failing to comply with the Foreign Account Tax Compliance Act (Fatca).

The U.S. extradited Baron from Hungary in July 2018 after an undercover sting where agents enticed him to use Loyal bank, an off-shore bank with offices in Budapest, Hungary and Saint Vincent and the Grenadines, to evade requirements to report the assets of individuals with U.S. indicia to their home government or directly to U.S. tax authorities.

Fatca is a broad federal law with powerful extraterritorial reach enacted in 2010 requiring foreign financial institutions to identify their U.S. customers and report information about financial accounts held by U.S. taxpayers either directly or through a foreign entity.

The law’s primary aim is to prevent U.S. taxpayers from using foreign accounts to facilitate the commission of federal tax offenses.

According to court documents, in June 2017, “an undercover agent met with Baron and explained that he was a U.S. citizen involved in stock manipulation schemes and was interested in opening multiple corporate bank accounts at Loyal Bank,” according to court documents.

The undercover agent then made it clear to Baron he did not want to appear on or be connected to any of the account opening documents for his bank accounts at Loyal Bank, even though he was adamant he would be the true owner of the accounts.

Baron responded, according to federal prosecutors, that Loyal Bank “could open such accounts and provide debit cards linked to them.” To read the full story, click here.

ACFCS Monthly Regulatory Report: U.S. penalizes Swiss bank on graft, new FATF priorities, crypto rules, and more

In this month’s ACFCS Regulatory Report covering July, ACFCS reported on a Swiss bank getting penalized in the U.S. for corruption at roughly the same time a Swiss regulator fined a bank for its role in a historic Malaysian graft scandal, global watchdog FATF updated its priorities under a new U.S. presidency, new clashes in ongoing beneficial ownership battles, and more.

In this feature started in 2018, ACFCS highlights key current, upcoming or potential changes in the global financial crime landscape, so compliance professionals, investigators and regulators can better keep abreast of pressing vulnerabilities, issues and legislative fixes.

Here is a snippet pulled from the “Enforcement” category for that month.

Credit Suisse in fincrime compliance spotlight again with nearly $80 million FCPA penalty for ‘princeling program’

Switzerland’s second largest bank and a Hong Kong subsidiary will pay U.S. federal authorities nearly $80 million to settle corruption charges that it improperly awarded choice employment spots to the family and friends of Chinese government officials to influence and, eventually gain, new business.

The U.S. Department of Justice (DOJ) and U.S. Securities and Exchange Commission (SEC) this month levied penalties of $47 million and $30 million respectively against Credit Suisse (Hong Kong) Limited and its Zurich-based parent, Credit Suisse Group AG, for “awarding employment” to the relatives and close associates of Chinese politically-exposed persons (PEPs) to capture new revenues, a clear violation of the U.S. Foreign Corrupt Practices Act (FCPA).

The penalty is yet another financial crime compliance foible for Credit Suisse, which has already paid multiple federal agencies and regulators billions of dollars in recent years for failures in nearly every area of counter-crime compliance, including anti-money laundering (AML), sanctions violations for dealing with blacklisted regimes, like Iran, tax evasion, and now, copping to corruption. To read ACFCS coverage of the penalty, click here.

To read more of the fully July 2018 Regulatory Report, click here.

Whitepaper: New approaches to KYC/CDD, with a focus on Africa, Asia, Mena regions

In this whitepaper published in January 2018, ACFCS Member and compliance professional Muhamad Rizwan Khan detailed some of the key tactics to better engage in what many consider the foundation of the AML program: more effective know your customer (KYC) and customer due diligence (CDD) exercises, with an eye toward nuances from multiple regions to give context to transactions, actors and corporates.

He noted that while some transactions “may seem low risk at first glance, and be for things like payments for consultancy fees, commission charges, agent fees, freight charges, or even a property payment or even just building up their savings, etc.,” engaging in enhanced due diligence (EDD) when these clues surface can yield surprising results with material risk tendrils.

“In my own job as a compliance officer, when I conducted KYC/CDD/EDD of those transactions, I mostly find third-party connectivity and opaque beneficial ownership structures,” Khan wrote, echoing the lamentations of many of the world’s greatest detectives and law enforcement investigators: such impenetrable structures can hide a range of criminal and terror groups. To read more, click here.

Senior FinCEN official arrested for leaking SAR data to news report about Trump advisers, Russia

In this October story, ACFCS reported that federal authorities arrested a senior U.S. Treasury department official for allegedly leaking thousands of confidential financial crime compliance program filings, including details about a high-profile investigation into potential ties between arch foe Russia and the president’s election campaign.

The official in question, Natalie Mayflower Sours Edwards, was a senior adviser for the Financial Crimes Enforcement Network (FinCEN), the country’s financial intelligence unit, which holds untold millions of anti-money laundering (AML) filings sent by financial institutions in the form of suspicious activity reports (SARs) and currency transaction reports (CTRs).

In an 18-page criminal complaint, authorities detailed nearly a dozen stories published by news site, BuzzFeed, over the course of a year where Edwards served as a secret source, handing over specific details on individuals and related financial transactions, which potentially revealed monetary support for Russian meddling during the 2016 presidential campaign.

The apparent goal was to uncover concrete financial linkages between these Russian activities and associates of President Donald Trump, including now convicted felon Paul Manafort, his former campaign manager, Paul Gates, the Russian embassy, and others. To read more, click here.

HSBC could face $1.5 billion penalty related to Swiss bank tax investigation: Annual report

In this story from February 2018, ACFCS reported that HSBC Holdings could face monetary penalties of more than $1.5 billion related to a host of criminal and regulatory probes charging that its Swiss private banking arm aided customers in evading taxes in their home jurisdictions, according to the bank’s annual report.

In the report, HSBC stated it is facing investigations in Argentina, Belgium, India, Spain and the United States, among others, related to tax crimes and money laundering. These disclosures come on the heels of the bank paying $370 million in November to settle similar claims in France. To read the full disclosure, click here.

The $1.5 billion figure is significantly larger than the just more than $600 million the bank had set aside at the end of the year for the various probes, but even that amount might go higher, depending on factors outside the bank’s control.

“Due to uncertainties and limitations of these estimates, the ultimate penalties could differ significantly from this amount,” according to the annual report. “In light of the media attention regarding these matters, it is possible that other tax administration, regulatory or law enforcement authorities will also initiate or enlarge similar investigations or regulatory proceedings.”

HSBC has been battling various criminal and civil probes, with some directly related the functioning of its anti-money laundering (AML) program, apart from the $1.9 billion penalty and deferred prosecution agreement (DPA) from December 2012 for AML and sanctions failures, chiefly becoming the bank of choice for Mexican drug cartels and dealing with rogue regime, Iran. To read more, click here.

NYDFS bucks federal tiptoeing, exhorts state financial institutions to bank medical marijuana firms

In this story from July, ACFCS reported that New York’s chief financial regulator took a firm stand against what it considers antiquated national laws, discordant government agencies and tiptoeing federal regulators by exhorting state-chartered banks and credit unions to establish banking relationships with legal medical marijuana businesses.

The move spelled out in guidance by the New York State Department of Financial Services (NYDFS) comes with the explicit support and urging of New York Governor Andrew Cuomo, who noted the issue is a polarizing one on the federal stage.

Cuomo noted the rancor and mixed messages in a statement, cognizant that Attorney General Jeff Sessions in January formally rescinded Obama-era protections dubbed the “Cole Memo” stating federal investigative agencies would not target legal cannabis businesses regulated and in good standing at the state level.

“The ability to establish a banking relationship is a challenge that legal industries face unlike no other,” Cuomo said in a statement. “As the federal government continues to sow discord surrounding the medical marijuana and industrial hemp businesses, New York has made significant progress in creating a supportive economic development and regulatory landscape for these companies.”

To pave the way for such relationships, the NYDFS stated clearly it “will not impose regulatory actions” on any New York state-chartered bank or credit union for opening an account or starting a new banking relationship with a medical marijuana-related business that complies with federal and state laws.

The statement is laced with irony as technically, marijuana is still listed as a schedule one drug at the federal level – on par with LSD, heroin and peyote – and handling and moving funds derived from even legal cannabis is tantamount to money laundering. Schedule one drugs are even worse than schedule two drugs, which include cocaine, meth and oxy. To read more, click here.

Financial Crime Wave – Standard Chartered faces sanctions scrutiny, U.K. ownership onus, and more

One of ACFCS’ most popular member benefits is our Daily Financial Crime Brief, curated, condensed and sent to compliance professionals right in their inbox. Every week, these briefs are further refined and crafted into the weekly Financial Crime Wave. Below are snippets from the most popular Crime Wave of the year from September.

In that week’s Financial Crime Wave, British bank Standard Chartered faced more scrutiny, potential penalties related to past sanctions violations, the United Kingdom detailed upcoming territorial beneficial ownership battles, Canada took steps to tackle money laundering in Vancouver, and more.


After years of reporting AML investigations by U.S., U.K, Standard Chartered could face more fines for Iran sanctions violations

Standard Chartered Plc has already paid a painful penalty for secretly moving billions of dollars through the U.S. on behalf of Iranian clients, in violation of sanctions. But a sweeping investigation has found evidence suggesting that the bank’s Iranian business was more extensive than it admitted, according to five people familiar with the matter. Now U.S. authorities are weighing a criminal penalty against Standard Chartered and individual employees,

Money laundering

Trudeau orders his new gang-busting minister to target money laundering in B.C. in move following criticism region is becoming a dirty money destination

The federal government wants to stop money laundering in B.C. and is asking one of its ministers to focus on shutting it down. In his most recent mandate letters to federal ministers, Prime Minister Justin Trudeau asked Bill Blair, minister of border security and organized crime reduction, to focus on ending money laundering in B.C., a move likely in response to international criticism and scathing reports that the region is becoming a dirty money destination for Asia, Russia and other countries. In one case, criminals even created a “Vancouver model” to launder money from China using casinos. To read more, click here.