Amid Big Sanctions Cases, AML Actions Fell by a Third in First Half of 2012

29th Aug 2012

By Brian Monroe and Colby Adams
The number of federal anti-money laundering enforcement actions issued in the first half of 2012 fell by 35 percent in comparison to the total levied during the same period last year, data shows.

The chief bank regulators—the Federal Deposit Insurance Corp. (FDIC), Federal Reserve and Office of the Comptroller of the Currency (OCC)—as well as the Financial Crimes Enforcement Network (FinCEN) handed down a total of 24 anti-money laundering (AML) orders and penalties from January 2012 through the end of June. That number compares to 37 issued in the first six months of 2011.

Bank Secrecy Act-related monetary penalties also fell, both in number and dollar amount. While the agencies and FinCEN fined banks $15.7 million in eight enforcement actions issued in the first half of 2011, they issued no monetary penalties at all during the first six months of this year, according to data compiled by ACAMS MoneyLaundering.com.

The total number of formal actions citing capital requirements, lending, Bank Secrecy Act (BSA), consumer protection, fraud, electronic banking and securities violations fell more than 38 percent from the same six-month period in 2011, to a total 232 actions. The decline contrasts with the $961 million forfeited to the U.S. Justice Department, New York State and the Office of Foreign Assets Control, among others, for bank sanctions violations since January 2012.

The attention paid to non-sanctions compliance violations has waned over the last year, said Kevin Sullivan, director of the New York-based AML Training Academy, and a former investigator for the New York High-Intensity Financial Crime Area, or HIFCA.
“We’re seeing the same issues again and again: sanctions violations, simple program oversights that let suspicious transactions through and subpar staff,” said Sullivan.

FinCEN, which does not conduct exams of financial institutions, issued no AML-related fines during the first six months of the year. That number compares to the five fines the bureau levied in the first half of last year and the five issued in the second part of the year, at times in conjunction with the OCC and other regulators.

The FDIC, which saw its number of AML enforcement actions jump from one during the first six months of 2010 to 12 during the same period in 2011, had the second biggest drop-off in the first half of 2012, issuing eight regulatory penalties. In 2011, the agency went on to levy a total of 19 orders and agreements citing Bank Secrecy Act (BSA) deficiencies.

AML enforcement actions by the OCC rose, conversely, from 10 in the first six months of 2011 to 15 during the same period this year. The 6-month total for 2012 is the second such period the OCC’s AML actions rose following its partial absorption of the now defunct Office of Thrift Supervision in July 2011.
The OCC’s takeover of the OTS “required a period of digestion,” which possibly stalled the conclusion of some OCC enforcement actions, said Matthew Herrington, a Washington, D.C.-based white-collar and bank compliance attorney with Steptoe & Johnson LLP.

The dip in enforcement actions this year could be a statistical anomaly or a sign that banks have improved their AML controls, said Herrington. “You just don’t see much of that type of low hanging fruit anymore,” he said.

The drop could also be due in part to an increasing meticulousness on the part of compliance examiners, said a compliance officer at a large bank in the southeastern United States. Exam findings, which have tended to take longer to reach in recent years, can also be delayed when regulators determine that violations merit a public order, said the individual, who asked not to be named.

Despite the apparent lull, congressional pressure will likely press AML examiners to give few breaks to banks in the coming months.
In July, the Senate’s Permanent Subcommittee on Investigations said the OCC had failed to bring a formal action against HSBC Holdings Plc despite identifying 83 Matters Requiring Attention between 2005 and 2010. While agents twice recommended cease-and-desist orders, the examiner-in-charge didn’t approve a formal action until after the U.S. Justice Department disclosed that it was investigating the bank, according to the report.
“What we have seen throughout this hearing [is that] there were [OCC examiners] that knew better, and sometimes efforts made that were ignored or squelched,” said subcommittee Chairman Carl Levin (D-MI), during a hearing on HSBC’s troubles.

Earlier this month, the New York State Department of Financial Services disclosed a $340 million settlement with Standard Chartered Bank for violating restrictions on so-called “u-turn” transactions linked to Iranians.

In June, Amsterdam-based ING Bank, N.V. forfeited a record $619 million to settle claims it violated sanctions against Iran and Cuba, in part by intentionally routing transactions through affiliates to disguise the role of blacklisted clients.

“You have Congress breathing down the OCC’s neck now [and] you’ve got New York doing their thing with [New York State Superintendent of Financial Services] Ben Lawsky, so you’re seeing a situation where federal regulators are going to have to act,” said Sullivan. “A lot of banks are going to be caught with their hand in the cookie jar.”

“They don’t want to be called before Congress and chewed up again,” said Robert Serino, a lawyer with Washington, D.C.-based Buckley Sandler LLP and a former OCC examiner. “It will be a rough period for banks because of the more aggressive regulatory attitudes.”

Spokespersons for the FDIC, OCC, Federal Reserve and FinCEN declined to comment for this story.

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