Money Laundering on the Front Burner

by Manatt, Phelps & Phillips, LLP
Contact

With the bulk of the banking industry’s credit problems resolved or at least more manageable than in the recent past, the regulators appear to be on a new warpath. Over the last year, they have sent strong signals to the banking community that Bank Secrecy Act and anti-money laundering issues have been moved to the forefront of regulatory concerns. High-profile settlements with Standard Chartered Bank and HSBC provided an opportunity for bankers everywhere to pause and consider the ramifications of this new focus on their own institutions, large and small. Then, in May of this year, the Federal Reserve refused to approve the merger of Hudson City Bancorp and M&T Bancorp in the Northeast because of identified issues with the M&T’s anti-money laundering compliance, causing M&T to hire outside consultants to help it address the Fed’s concerns and implement remediation procedures so as to enable the merger to go forward down the road.

Aside from requiring the institution to properly correct identified deficiencies in BSA/AML policies and procedures, the regulatory spotlight has been increasingly placed on the boards of community banks, forcing directors to become more directly engaged in supervising the BSA/AML process — in addition to the other responsibilities placed on directors for supervision of the bank’s activities. What is the best way for management and the board to work together to assure that the bank is properly and effectively managing its compliance responsibilities in the BSA/AML area?

First, the bank should engage in a self-assessment of its profile to measure risk across product and business lines, the customer base and locations. This should be part of the bank’s overall enterprise risk-management process and is intended to provide a comprehensive understanding of the bank’s risk exposure and aid in the development of appropriate BSA/AML policies and procedures. If the bank does not demonstrate that it has done this, the regulators will do it and the result could be enforced requirements of reporting and demonstrated progress, perhaps under the demands of a cease and desist order or other enforcement constraint.

Second, management and the board should evaluate whether the bank’s BSA/AML compliance program, including internal controls, compliance testing, and personnel and training is sufficient given the bank’s risk profile. The bank should become aware of the tools that are available in the marketplace to assist with implementing appropriate BSA/AML policies, particularly techniques designed to be highly effective in identifying possible attempts to use the bank for improper purposes. It should be noted that the vigilance demanded of banks is not merely to identify issues arising in the bank’s daily operations but also to identify possible issues arising out of the new-account opening process as well as in transactions in which the bank is a more passive player with an intermediary bank, all as part of maintaining an effective compliance culture.

Third, the hiring and retention of competent and experienced personnel to manage the BSA/AML effort and to identify and address potential problems on a daily basis is one of the most important decisions to be made in the BSA/AML area. Most importantly, the bank’s identified BSA officer should be approved by the board and be given the freedom of the bank, with authority to pursue potential problems throughout the institution. A designation of a BSA officer without giving that officer the authority to act broadly within the bank is a frequent criticism by regulators. Moreover, the BSA officer should have direct reporting authority to the relevant board committee, such as an audit and compliance committee, and should meet with the committee regularly to report on recent developments and possible trends that bear corrective action.

Fourth, the BSA officer has to implement and manage on an active basis an ongoing training program for bank employees to sensitize them to circumstances that might suggest problems that could lead to the need to file a suspicious activity report. This should include a mechanism by which bank employees can transmit details of possible BSA/AML violations to the BSA department on an anonymous basis, thereby encouraging the flow of information within the organization. In most community banks, training on BSA matters is essential in the branch retail network because this is where identified BSA issues are most likely to surface. However, training should be broad-based and cover all areas of the bank identified as higher risk. Directors should receive BSA/AML training, as well.

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.

© Manatt, Phelps & Phillips, LLP | Attorney Advertising

Written by:

Manatt, Phelps & Phillips, LLP
Contact
more
less

Manatt, Phelps & Phillips, LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.