The Federal Reserve Bank of New York earlier this year blocked M&T Bank Corp.'s planned $3.7-billion acquisition of Paramus-based Hudson City Bancorp Inc. because of anti-money-laundering compliance issues at M&T, the Buffalo, N.Y., lender.
Smaller financial institutions are having to deal with emerging compliance risks such as those posed by the rapid growth of mobile banking and payments technologies while experiencing serious cost pressures and limited ability to allocate resources to address compliance risk.
The migration of Mexican drug traffickers from major U.S. financial institutions to smaller national and regional banks, as discussed in the October 2012 "Compliance Advisor," is illustrative. Following Wachovia's $160 million settlement for BSA/AML violations concerning drug cartel transactions, regulators focused on similar suspicious activity at HSBC, Citigroup and JP Morgan Chase. The subsequent movement of drug cartel money to smaller institutions was followed by regulators, resulting in the following 2011 enforcement actions:
In his March 7, 2013, written testimony before the Senate Committee on Banking, Housing, & Urban Affairs, Comptroller of the Currency Thomas Curry listed migration to smaller banks as one of seven key trends.
Compliance complacency is no longer a viable option for financial institutions of any size.
As required under Dodd-Frank, the Office of Thrift Supervision (OTS), was integrated into the OCC in July, 2011, and the OCC now has direct supervision of community banks and thrifts. The Dodd-Frank provision was at least to some extent spurred by criticism of OTS oversight of Washington Mutual, Countrywide Bank and IndyMac Bancorp.
Regulatory bodies worldwide are working to harmonize enforcement efforts and supervisory oversight of multinational financial institutions. In February, 2013, the Financial Action Task Force on Money Laundering (FATF) adopted a new Methodology for Assessing Technical Compliance with the FATF Recommendations and the Effectiveness of AML/CFT (Anti-Money Laundering and Countering the Financing of Terrorism) Systems.
Banking regulators long have had the authority to issue C&D orders, levy civil penalties against an insured financial institution and its officers and directors, and issue removal and prohibition orders against officers and directors. While traditionally used primarily in cases where institution-affiliated parties were clearly complicit in violations, the recent emphasis on governance and senior management accountability has encouraged expansion of these powers to push remediation of weak and inadequate compliance programs. The OCC is reviewing its statutory "removal and prohibition" authority and is exploring whether a new regulation or agency guidance is warranted to put the industry on notice. Further, the Department of Justice is beefing up its resources to deal with financial crimes.
Emerging payments technologies, such as prepaid access, mobile wallets and mobile banking present unique exposures that are particularly challenging for OFAC compliance.