Frederick E. Curry III Deloitte Transactions and Business Analytics LLP December 3, 2014 Association of International Bank Auditors Anti-Money Laundering:

Frederick E. Curry III

Deloitte Transactions and Business Analytics LLP

December 3, 2014

Association of International Bank Auditors

Anti-Money Laundering:A New Sense of Urgency

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Deloitte.

Why is AML Still a Hot Topic?

Setting the Tone at the Top

Improving Compliance Capabilities

Q & A

I

II

III

IV

Section I: Why AML is Still a Hot Topic?

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Why is AML Still a Hot Topic?

AML compliance is still important:• AML statutes and compliance are still an important tool the government has in

combating financial crimes, and the war against terrorism

• Large financial institutions continue to face enforcement actions related to requirements of BSA

• In the wake of the financial crisis, some banks reduced staff and spending on AML compliance as part of their austerity measures

• As large banks improve BSA/AML compliance and exit higher risk businesses, money launderers are migrating to mid-sized and smaller banks

There has been a clear increase in regulatory enforcement actions:

• In the last 5 years, the Federal Reserve has issued 113 enforcement actions related to BSA and OFAC compliance, including 25 public cease and desist orders and written agreements

• With these recent actions, the Federal Reserve has assessed hundreds of millions of dollars in penalties - subject to these actions are large and small, domestic and foreign institutionshttp://www.federalreserve.gov/newsevents/testimony/powell20130307a.htm

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Recent Enforcement Actions, Investigations, and Fines Proliferate

Sept, 2014

• A former chief compliance officer of a major money-transfer company was investigated by FinCEN for suspected lapses in the firms AML oversight

May, 2014

Jan, 2014

• The OCC assessed a $350 million civil money penalty against a major bank for widespread deficiencies in the bank’s BSA/AML compliance programs with respect to suspicious activity reporting, monitoring of transactions, internal controls and independent testing, and other matters

Aug, 2013 – Nov, 2014

• A federal jury in the Eastern District of New York ruled in favor of a group of 297 individual plaintiffs in a civil suit accusing a foreign bank, headquartered in the Middle East, of terrorist financing

• FINCEN and the DOJ have begun to focus on major casinos• Within recent years there have been several cases involving fines

and penalties exceeding $50 million for violations of the BSA

Section II: Setting the Tone at the Top

“For the culture of compliance to be strong within an institution, the business side of the organization needs to take AML controls seriously. And it needs

to begin with the institution’s leadership.”

- Jennifer Shasky-Calvery, Director of FINCEN

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Corporate Governance In March 2013, at a testimony before the Committee on Banking, Housing, and Urban Affairs of the U.S. Senate, Thomas Curry, Comptroller of the Currency identified the following as a part of the causes of a breakdowns in the fundamentals and mechanics of sound management of operational risk for BSA/AML programs:

• lack of strong corporate governance principles necessary to create a “culture of compliance” within the organization.

• lack of sufficient staffing, high turnover rates, and cutbacks in the compliance area as common factors that have impeded the effectiveness of banks’ BSA/AML programs

On Aug. 11, 2014, FinCEN highlights the importance of maintaining a strong culture of BSA/AML compliance for senior management, leadership and owners of all financial institutions – regardless of size or industry sector. Shortcomings identified in recent AML enforcement actions include:

• its leadership actively supports and understands compliance efforts

• efforts to manage and mitigate BSA/AML deficiencies and risks are not compromised by revenue interests

• the compliance program is effective by, among other things, ensuring that it is tested by an independent and competent party

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Personal Liability

Regulators have begun identifying individuals who are responsible for compliance programs and holding them personally liable for deficiencies

Aug, 2014 FinCEN will look for more opportunities to penalize partners, directors, officers and employees of financial institutions who themselves actively participate in misconduct

FDIC has been using the Financial Institutions Reform Recovery Enforcement Act to seek recovery from directors and officers of failed financial institutions

Sept. 2014 Brad Bennett FINRA Exec V.P., said, chief compliance officers are assigned specific responsibilities in areas that present substantial risks to investors, and those who fall short will be held accountable

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Personal Liability - Recent Enforcement

Former Global AML Compliance Officer at a major private bank was personally fined $25,000 and suspended for one month, while the bank was assessed a fine of $8 million

In an action against an investment adviser for failure to comply with custody rules, the SEC pursued the firm, and alleged that the CCO failed to take necessary steps to ensure that the firm complied with the required custody rules

The Director and Chairman of the Board and the former President/CEO of a bank in Miami, FL, each assessed a civil money penalty for failing to take necessary actions to ensure compliance with a 2005 Consent Order

FINRA

SEC

OCC

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Corporate Monitors

Benjamin Lawksy, New York’s superintendent of financial services is planning to increase the scrutiny of banks and other firms operating in

New York by increasing the use of Corporate Monitors

http://online.wsj.com/articles/regulator-wants-greater-use-of-bank-monitors-1415231857

To-date Lawsky’s office has implemented the use of monitors at 7 financial institutions, and the trend only seems to be growing as

Lawsky was quoted as saying “this has been a great process,” and “the monitor has skills we [Dept. of financial services] don’t”

• A compliance monitor or consultant is a creation of the last decade• When a corporation accused of wrongdoing agrees to settle the

charges or is sentenced to probation, it is often required to pay for a monitor to ensure that it does not break the law again

• The corporate monitor is to supervise the compliance procedures of the company as well as beef them up

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Corporate Backsliders

Regulators are Reopening Cases

• Recently prosecutors have begun questioning whether a major British bank failed to disclose the extent of its wrongdoing to the government, imperiling the bank’s earlier settlement

• New York State’s banking regulator is taking a fresh look at old cases, reopening settlements, and in some cases they will impose a financial penalty that was larger than the previous assessed amount, and other cases they may consider additional fines and penalties and replacing Deferred Prosecution Agreements with actual prison sentences

The Wall Street equivalent of a parole violation: Just two years after avoiding prosecution for a variety of crimes, some of the world’s biggest

banks are suspected of having broken their promises to behave

Section III: Enhancing the Internal Audit Process

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Significance of the Internal Auditors

https://na.theiia.org/standards-guidance/mandatory-guidance/Pages/Definition-of-Internal-Auditing.aspx

Business Operations

Oversight Functions

Internal Audits

3 Lines of Defense

Regulators are looking to internal audit as the third and final line of defense to detect irregularities within an organization’s BSA/AML and

other compliance programs while also providing assurance that the first two lines of defense are effective.

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Strengthening The Compliance Culture

• leadership actively supports and understands compliance efforts

• efforts to manage and mitigate BSA/AML deficiencies and risks are not compromised

• relevant information from the various departments within the organization is shared with compliance staff to further BSA/AML efforts

• the institution devotes adequate resources to its compliance function

• the compliance program is effective by, among other things, ensuring that it is tested by an independent and competent party

• its leadership and staff understand the purpose of its BSA/AML efforts and how its reporting is used

Advisory to U.S. Financial Institutions Promoting a Culture of Compliance August 11, 2014 FIN-2014-A007

Internal Auditor, CCOs, and CROs can help strengthen a BSA/AML compliance culture by ensuring that:

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Strengthening Audit Programs

In order to strengthen internal audit programs, internal auditors should:

• have comprehensive knowledge and understanding of BSA/AML regulations

• attend external BSA/AML trainings

• have AML certification

• independently stay current on industry-leading practices, emerging regulatory expectations, and enforcement actions

• employ data analytics for testing of AML related technology (e.g., transaction monitoring, sanctions screening, model validation)

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Common Program Weaknesses Requiring IA’s Attention

•  Insufficient resources dedicated to compliance

• Risk Assessment lacks quantitative analysis and support

• Inadequate KYC procedures, including limited view of entire customer relationship

• Employees, Board and management have not received relevant and targeted AML compliance training

• Inexperienced compliance staff

• Inadequate program status reporting to the Board and management

• Failure to identify and periodically monitor high risk accounts or activity

• Suspicious activity investigations not properly documented

• AML systems and supporting technology not stress tested

• Failure to file timely and accurate required regulatory reports

Section IV: Questions and Answers

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Contact Information

Deloitte Transactions and Business Analytics LLP555 12th St NW Ste 500Washington, DC 20004-1207USA

Tel +1 202 378 5171Fax +1 202 661 1371

[email protected]

Frederick CurryPrincipalGlobal Anti-Money Laundering and Sanctions Practice  

About Deloitte

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