bank enforcementThe end of the year was very tough for global banks.  For months significant enforcement actions were expected in the ongoing LIBOR manipulation probe and anti-money laundering and sanctions violations probes.

This was not a year of FCPA enforcement – it was a year in which anti-money laundering, sanctions and LIBOR dominated the enforcement scene.  Banks have typically been “safe” from aggressive enforcement as long as they pleased their regulators – the OCC, the FDIC and/or the Federal Reserve.  That has changed significantly.  The Obama Administration has made prosecuting the financial industry a top priority – partly in response to public demands and partly in response to its own concerns about the financial meltdown in 2008 and 2009.

For banks – big and small – this trend is going to continue for at least the next few years.  Compliance programs which satisfied the regulators in the past now have to be re-examined and measured against a higher standard, one which will satisfy tougher enforcement standards.

Prosecutors are now focused on three specific areas: anti-money laundering compliance, sanctions enforcement and LIBOR rate manipulation.

UBS LIBOR

UBS settled with US, UK, Japan, and Switzerland authorities for LIBOR price fixing and manipulation.  More significant enforcement actions are expected in the LIBOR investigation.  Twenty additional banks are under investigation.imagesCA5TMK7B

UBS’ United States subsidiary was not required to plead guilty out of fear that it would lose its banking license.  Two former UBS senior traders were charged with criminal conspiracy in Manhattan federal court.

The UBS DPA includes stringent compliance requirements, including firewalls to prevent improper communications between traders and other staff submitting LIBOR rate information.  The DPA also requires UBS to improve document preparation and retention procedures, and new auditing, monitoring and training measures.

The LIBOR price fixing scandal will have significant private litigation implications.  The UBS deal will provide valuable ammunition for dozens of lawsuits filed in U.S. courts against banks by aggrieved customers, investors and others, seeking billions of dollars for antitrust violations.

AML and Sanctions

Standard Chartered settled for $327 million for sanctions violations; and HSBC settled a long-running probe for $1.9 billion for AML and sanctions violations.

The HSBC settlement rekindled controversy around the Deferred Prosecution Agreement which included no criminal charges against HSBC or any individuals.

Compliance Implications

It is easy to dismiss the recent banking enforcement actions, citing the fact that bank officers and employees acted deliberately to flout known LIBOR, AML and sanctions restrictions and requirements.  In many cases, rules were deliberately ignored.  Due diligence requirements were ignored and quickly checked off despite serious problems and deficiencies identified in the review of transactions.  In fact, the systematic breakdowns in the cases reflect a total disregard for compliance and supervisory instances of neglect and deliberate indifference.

imagesCA87ZV99The culture of ignorance started small and quickly grew as the companies became more accepting of unethical and illegal conduct.  It is easy to do that as the company makes more money and feels rewarded by its performance.

Companies which face these large prosecutions have significant future challenges.  Deferred Prosecution Agreements have been imposed and stringent compliance regimes have to be put in place.  For some companies, this is the only way change can be implemented.  Senior management is often replaced and a new crew of managers takes over.

These financial companies have had to and will be forced to increase compliance spending by millions of dollars, establish new global supervision and compliance offices, revamp their internal compliance and auditing protocols, fire third-parties implicated in the course of violations, and spend millions on remedial measures.

It will take years for these companies to right their ships.  They have to implement new global compliance policies, screen their operations and transactions more carefully, and continue to cooperate with regulatory and law enforcement authorities.

Topics:  Anti-Money Laundering, Compliance, Deferred Prosecution Agreements, Foreign Banks, Libor, Money Laundering, Sanctions, UBS

Published In: Antitrust & Trade Regulation Updates, General Business Updates, Criminal Law Updates, Finance & Banking Updates, International Trade Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Michael Volkov, The Volkov Law Group | Attorney Advertising

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