U.S. court bolsters regulatory efforts to secure individual liability for BSA/AML failures

A federal district court in Minnesota recently held that the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has the authority to pursue individual liability for willful violations of the Bank Secrecy Act’s (BSA) anti-money laundering (AML) requirements. This decision is indicative of a broader regulatory trend focusing on the critical role of compliance officers and senior management in preventing crimes such as terrorist financing, money laundering, fraud and other illicit financial activities.

Thomson Reuters understands the need for a knowledgeable workforce dedicated to compliance and offers online courses on Anti-Money Laundering trainingFraud Detection and Awareness training and Anti-Bribery and Anti-Corruption training.

Compliance Officer Seeks Dismissal of FinCEN’s $1 Million Penalty Assessment

On January 8, 2016, the U.S. District Court for the District of Minnesota denied a motion by Thomas Haider, the former chief compliance officer of a global money services business, to dismiss FinCEN’s civil complaint seeking to enforce a $1 million civil penalty against him for BSA violations.

FinCEN assessed this record penalty based on its findings that Haider was personally responsible for institution’s failure to implement and maintain an effective AML compliance program. FinCEN also found Haider failed to file timely Suspicious Activity Reports (SARs) when he knew, suspected or had reason to suspect that third parties were using the institution’s money transfer service to facilitate criminal activity.

Court Rules BSA Provides for Individual Liability

Haider argued that because the BSA only refers to the obligations of “financial institutions” to maintain AML programs, individual liability is not available under the law. The court, however, denied the motion, finding that the BSA implies individual liability in its civil penalties provision establishing penalties for willful BSA violations by any “domestic financial institution” or “partner, director, officer, or employee” of such institution (except for two excepted BSA provisions).

FinCEN’s Action Part of Larger Enforcement Trend

FinCEN’s action against Haider demonstrates its willingness to hold individual compliance officers liable. This is reflective of a larger enforcement trend that finds U.S. regulators using the threat of individual liability to force corporate officers to instill a culture of compliance. In September 2015, the Department of Justice’s Yates Memo announced it would increase its efforts to hold individuals liable in cases of corporate misconduct.

Additionally, the New York Department of Financial Services is currently reviewing public comments on new proposed regulations that would subject chief compliance officers to potential criminal liability for noncompliance with AML/BSA requirements.

Recent cases indicate regulators are most likely to take action against individuals when such compliance failures involve individuals who consistently ignored red flags, allowed issues to go unaddressed for substantial periods and/or where inaction results in systemic breakdowns, significant customer harm or allows criminals access to the financial markets.

Ruling Highlights Regulatory Expectations of Compliance Officers

Regulators are aware that compliance officers are often constrained by decisions made by high-level executives and boards of directors. Nonetheless, compliance officers should note that FinCEN’s allegations focused on Haider’s inaction in the fact of illicit activity.

FinCEN bases its allegations on its interpretation of “willful” to include conduct where a person acts “recklessly or with willful blindness.” Thus, a lack of authority is not an acceptable excuse for inaction. Rather, regulators expect compliance officers to educate and inform decision-makers about their legal obligations, as well as the risks and consequences of ignoring AML issues.

Financial institutions can help their compliance officers — as well as the rest of their employees — become familiar with applicable laws and how to spot and address potential violations with Thomson Reuters’ online Anti-Money Laundering trainingAnti-Bribery and Anti-Corruption training.

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