Regulators Increasingly Pursue Individual Liability for Money-Laundering Violations


The Financial Crimes Enforcement Network (FinCEN), an arm of the U.S. Department of Treasury, recently fined a Miami-based money services business (MSB) and its owner $10,000 for failing to implement proper anti-money laundering (AML) controls in violation of the Bank Secrecy Act (BSA). Charges include failing to register as a MSB and willfully violating the BSA's program, reporting and recordkeeping requirements.

This action is part of a trend intended to improve AML compliance in the MSB industry and the financial sector as a whole. In an effort to expand enforcement tactics beyond sanctions for personal misconduct, government regulators are increasingly holding individual corporate officers — including compliance professionals — personally liable for their failure to properly manage and oversee their organization's compliance efforts.

Thomson Reuters’ annual Cost of Compliance survey of more than 600 compliance practitioners from financial services firms around the world revealed that 53% of compliance officers now believe that their personal liability has increased.

According to FinCEN Director Jennifer Shasky Calvery, regulators are seeking to ensure that individual corporate officers do not use financial institutions as a cover for illicit activity. Consequently, regulators are increasingly looking to individual corporate officers to instill a culture of compliance, holding them accountable when they make financial institutions vulnerable to terrorist financing, money laundering, proliferation finance and other illicit financial activities.

While MSBs are particularly vulnerable to being used in money-laundering schemes, their executives are not the only ones facing personal liability for lapses of oversight. The U.S. Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA) and Consumer Financial Protection Bureau (CFPB) are all stepping up their efforts to sanction individuals for compliance failures.

Recent enforcement actions, such as FINRA imposing a $25,000 fine on a former AML compliance officer for his company’s compliance failures, is another example that individual executives and compliances officers are likely to see more fines — and potentially higher ones.

Some experts have expressed concern that this focus on individual compliance officers will dissuade qualified individuals from such positions for fear of personal liability. Others believe that it will force bank executives to prioritize compliance and provide more support to compliance officers. Regulators have also attempted to alleviate concerns by assuring financial executives and compliance officers that their focus will be on major, systemic violations and not honest mistakes, errors in judgment or minor compliance failures.

Given the heavy regulation, significant compliance burdens and enforcement efforts currently underway in the financial sector, MSBs and other financial institutions need to be vigilant about implementing comprehensive compliance policies.

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.

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