British-based HSBC, one of the world's largest banks, agreed to a record $1.92 billion settlement with authorities for its role in money-laundering of Iranian assets and Mexican drug cartels. Helm Bank USA of Miami saw significant drops in its deposits and earnings after it received a regulatory order criticizing its compliance with AML standards and the Bank Secrecy Act. These are but two recent examples.
Many industry experts expect regulators to be more aggressive and demanding in examinations for at least the near term. Dissatisfaction among judges, Congress, and the public with Deferred Prosecution Agreements (DPAs) makes it likely there will be fewer DPAs and more criminal charges brought against institutions and individuals.
The Office of the Comptroller of the Currency (OCC) has been taken to task in Congressional hearings for being too lax in oversight and passive in regulatory posture. The result has led to more aggressive regulators across the board.
Due diligence and periodic reviews have become more demanding. As a result, banks need to be proactive in preparing for review and keeping their AML compliance programs and procedures ahead of the regulators.
Too often, SARs are interpreted in different ways by different stakeholders. For instance, law enforcement views a SAR's use and data points differently than a bank compliance officer. And what constitutes a "complete" SAR is the subject of wide debate.
Understanding perspectives is extremely important. For example, the “why” is most important to law enforcement; it wants to know “why” an activity is suspicious. For bank compliance officers, the “how” is most important; they want to know “how” their banks were used in furtherance of illicit activity.
Bridging these differences requires proper training for all users of SARs and an effective liaison between all parties involved – banks, law enforcement, consultants and regulators.
Effective and consistent customer due diligence is essential to successful AML compliance programs. Enhanced Due Diligence requires a much deeper-dive into a customer's profile, past dealings, purchase and other behavioral patterns, business dealings and other relevant trends.
Civil claims against banks have increased after well-documented financial crises. One recent example is TD Bank. They were involved in lawsuits and financial settlements related to its involvement and role in covering up a $1.2 billion dollar Ponzi scheme executed by Scott Rothstein. Some of these actions will be ongoing for a long period of time.
These actions, and similar ones, represent real hits to the bottom line. They also demonstrate the growing trend of victims grouping together and filing lawsuits against banks for failing to identify frauds or for not identifying them in a more timely manner.