BSA Compliance:
Regulators are Playing for Keeps
John S. Burnett, BOL Guru
In 2007, federal financial institution regulators took nearly thirty enforcement actions for non-compliance with Bank Secrecy Act and Anti-Money Laundering regulations. Four of those orders imposed a total of $100 million in cash penalties, ranging from as little as $250,000 to a high of $65 million. Regulators haven't yet publicized all of their BSA orders for the year, but the 29 orders that have been announced all require huge investments in time, effort and improvements in the BSA/AML programs of the targeted institutions.
Playing for Keeps
The regulators have made it crystal clear that they mean business:
- The Federal Financial Institutions Examination Council (FFIEC) has published a Bank Secrecy Act Anti-Money Laundering Examination Manual both to provide uniform training to examiners of each of the financial institution regulators, and to provide information on regulatory expectations to the institutions to be examined.
- In July 2007, the agencies released a joint Statement on Enforcement of Bank Secrecy Act/Anti-Money Laundering Requirements.
- The number of enforcement actions has increased each year since 2004, when the first orders were issued for inadequate BSA/AML compliance programs. There were two orders in 2004, six in 2005, eleven in 2006, and 29 have been published so far for 2007.
A Resource for Your Bank
BankersOnline has assembled a collection of Cease and Desist and Civil Money Penalty Orders as a resource for bankers. You and your BSA officer can use it to determine the types of shortcomings that regulators are identifying in the banks they are examining, and the corrective (or punitive) action that resulted from those shortcomings. You can use this information as the regulators mean it to be used -- as object lessons on what needs to be done to avoid similar actions against your institution.
Here are some examples described in our BSA/AML Penalties List:
- Many bankers believe that they don't need to file Suspicious Activity Reports unless their bank has sustained a loss. Some AmSouth bankers believed that, too, and failed to report a significant embezzlement from a bank customer. AmSouth was hit with one of the first big civil money penalties ($10 million, October 2004), and the unreported embezzlement is one of the reasons.
- Some bankers "look the other way" when a management official is involved. That's one of the reasons The Foster Bank was assessed a $2 million penalty in December 2006. The bank's president was helping his son and a former director structure transactions to avoid currency transaction reporting.
- Money Services Businesses are regulated, so bankers don't need to be concerned with their activities, right? Ask anyone who worked for Beach Bank, which ignored its MSBs' patently suspicious activity and ignored its own internal policies. Beach Bank was assessed an $800,000 penalty in December 2006, and went out of business.
- Even Cease and Desist orders carry a price tag. Tiny ($15 million) Dover NJ Spanish American Credit Union learned in its February 2007 order that it would have to complete a "look-back" review of transactions starting in 2001 and back-file missed CTRs and SARs, using knowledgeable staff, even if it meant hiring temporary help to assume routine credit union assignments.
Executive Steps:
It is clear that regulators expect and demand compliance. Finding out why other institutions have received regulatory enforcement orders can provide valuable insight into regulatory expectations and help your bank get itself in shape before its next BSA examination.
- Review BOL's BSA/AML Penalties List.
- Read several of the published orders. They are linked to the name of the institution in the heading of each entry.
- Make sure your BSA Officer knows about the Penalties List. It can be a valuable training tool. Use the link at the top of this page to send a copy of this briefing to him or her.
- Be an advocate with your directors for any needed support for your bank's BSA/AML compliance program.
- Support and participate in your bank's BSA/AML training. Management involvement is critical to the creation of "buy-in" by employees.
- Support an enterprise-wide, integrated BSA/AML program designed to avoid the types of problems revealed in the published orders.
- Support your BSA officer's efforts to keep abreast of industry trends and regulatory expectations through education and attendance at BSA/AML conferences and schools.
Resource Links
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First published on BankersOnline.com 01/30/2008
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