Deputy AG Outlines Financial Crimes Enforcement Approach, Compliance Expectations

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On November 18, at an American Bar Association/American Bankers Association conference on the Bank Secrecy Act/Anti-Money Laundering (BSA/AML), Deputy Attorney General (Deputy AG) James Cole challenged financial institutions’ compliance efforts and outlined the DOJ’s financial crimes enforcement approach. Noting that compliance within financial institutions is of particular concern to the DOJ, based in part on recent cases of “serious criminal conduct by bank employees,” the nation’s second highest ranking law enforcement official detailed DOJ’s approach to investigating and deciding in what manner to pursue potential violations. The Deputy AG included among his examples of serious misconduct recent BSA/AML, RMBS, mortgage False Claims Act, and LIBOR cases. He explained that the DOJ is particularly concerned about incentives that encourage excessive risk taking, and stated that “too many bank employees and supervisors value coming as close to the line as possible, or even crossing the line, as being ‘competitive’ or ‘aggressive.’”

Deputy AG Cole stated that the DOJ’s decisions about bringing criminal prosecutions are informed by the Principles of Federal Prosecution of Business Organizations, which include, among other factors: (i) the nature and seriousness of the offense; (ii) the pervasiveness of the wrongdoing within the corporation, including the complicity of corporate management; (iii) the corporation’s history of similar misconduct, including prior criminal, civil, and regulatory actions against it; and (iv) the adequacy of a corporation’s pre-existing compliance program. He added that the DOJ “look[s] hard at the messages that bank management and supervisors are actually giving to employees in the context of their day-to-day work.” Specifically, the DOJ (i) reviews chats, emails, and recorded phone calls; (ii) talks to witnesses to assess management’s compliance message; and (iii) examines the “incentives that banks provide their employees to either cross the line, or to exhibit compliant behavior.”

The Deputy AG stressed that “[i]f a financial institution wants to encourage compliance – if its values are not skewed towards making money at all costs – then that message must be conveyed to employees in a meaningful and effective way if they’d like [the] Department to view it as credible.” He echoed past calls by federal authorities for institutions to create “cultures of compliance” that include “real, effective, and proactive” compliance programs. Any institution that fails to do so, he cautioned, could be subject to prosecution.