Judge’s ruling affirming individual liability for AML program failures

A ruling earlier this month by a U.S. district court judge in Minnesota stating compliance officers can be held legally liable for anti-money laundering program failures at their institutions under Bank Secrecy Act regulations is “frightening” for professionals in already challenging roles, say some in the field.

The decision by U.S. District Court Judge David Doty was a significant blow to former MoneyGram Chief Compliance Officer Thomas Haider, who is fighting a $1 million penalty for alleged missteps handed down in 2014 by the US Treasury’s Financial Crimes Enforcement Network (FinCEN).

“The ruling is definitely a big deal,” said a compliance officer at a large bank headquartered in the United States. “It’s pretty darn frightening. It sets up a bad precedent for compliance people who really are trying to do the right thing. Most compliance officers or chief compliance officers have their hearts in the right spot.”

The action against Haider occurs at a particularly fraught time in the history of financial crime compliance and enforcement.

In recent years, judges and the general public have voiced a desire for more individual accountability in systemic anti-money laundering (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, including 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.

FinCEN’s action against Haider has its origins from MoneyGram’s $100 million settlement with the U.S. government in 2012, in which the money remitter admitted to wire fraud and money laundering program failures.

‘No win situation’ for financial crime compliance officers

The ruling, combined with the general momentum in recent years at the federal and state levels to find more “individual liability” in broad financial crime compliance failures, seems to be putting staffers in bank departments in a “no win situation,” said the compliance officer, who asked not to be named.

“If everything goes right, well, in general that’s what I am supposed to be doing at my job,” said the compliance officer. “But my job is putting fires out all over the place all the time. So that means if anything goes wrong, even if I am trying my best, I can be served up on a platter.”

As well, there are decisions that can happen above or below a compliance officer’s level that, again, leave individuals in that division holding the proverbial bag, said the person.

In some cases, compliance officers can see suspicious behavior and want to report or it close potentially illicit accounts, but they can be overruled by senior executives or even business line managers focusing on the profit margins of certain clients, rather than money laundering risk, said the compliance staffer.

At the same time, if a compliance officer simply disagrees with a lower ranking staffer over the filing of a suspicious activity report, or keeping the account of an operation that appears to be linked to aberrant activity, that person can report those very subjective decisions to outsider authorities under whistleblower laws, said the person.

“I understand why the government is doing this, but the focus is misplaced. It’s not the compliance person engaging in the wrongful actions,” it’s the criminal groups and entities trying to launder the money,” said the compliance officer. “It’s really unfair.”

FinCEN in its penalty action stated Haider failed to ensure MoneyGram complied with the AML provisions of the Bank Secrecy Act.

In particular, FinCEN stated Haider didn’t file required suspicious activity reports on certain agents he knew or suspected were engaged in fraud, money laundering, or other criminal activity.

In tandem, the bureau accused him of not performing adequate due diligence on suspect agents or auditing or terminating known high-risk agents.

Compliance overruled by higher execs

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.”

Some believe that Haider tried his best to get senior management aware of the possibly illicit agents and wanted to close them, but was overruled by his superiors, and later made the “scapegoat” of the company’s compliance problems to finalize the hefty settlement, said an individual familiar with the matter who knows Haider personally.

The case against Haider, though, comes with potential pitfalls for FinCEN as well.

“If the government fails to prove their case, FinCEN and The U.S. Department of Justice open themselves to charges of abuse of process,” said the person, who asked not to be named. “Those involved in the case against Haider could themselves be sued, and personally.”