The Financial Industry – Life Is Getting Tough


aml5Financial institutions, investment banks, private equity firms and hedge funds are having a rough time.  Things are just not going well for them.  While the economic outlook is turning positive, the enforcement atmosphere is casting a black cloud over boardrooms and senior management in the financial industry.

In recent statements from the Justice Department and regulatory officials, prosecutors and regulators have warned the industry that individuals may be prosecuted in the future for money laundering violations.  As I always say, when the government says something – they mean it.  The government does not prosecute or enforce the laws in secret.

Financial companies have to re-examine their risk assessments and allocation of compliance resources.  Financial institutions are familiar with regulations. They have a long history of being regulated.  They do not have a long-history of being prosecuted for criminal violations, except those engaged in rampant fraud and stealing of bank funds.

In every significant money laundering investigation and enforcement action, the government has to identify an individual or several individuals who collectively establish the corporation’s criminal conduct.   The doctrine of respondeat superior requires prosecutors to find at least one individual who satisfies all of the elements of the crime.

For prosecutors, it will be easy to turn their attention to individual prosecutions.  The most culpable actor(s) is usually fairly obvious when reviewing the evidence.  These individuals will now be threatened with government prosecution.aml

The government’s warning is not so threatening to the banking industry.  They should have expected individual prosecutions.  The FCPA, antitrust, and fraud laws are all enforced against individuals.  There is no reason to excuse money laundering violations.

As usual, the devil will be in the details.  Prosecutors have to be careful not to overreach — individual prosecutions should, at the outset, focus on the bad actors not the close calls.  It is only fair.

To make matters worse, Justice Department prosecutors have reportedly joined the SEC in the investigation of a number of major global banks and investment firms relating to potential FCPA violations involving the Libyan Sovereign Wealth funds.  This is no surprise.

With the overthrow of the Gadaffi regime, government prosecutors obtained access to overseas documents and information from the new regime in Libya outlining the payments of bribes to government officials in the Libyan government.

aml4The list of banks and investment companies being investigated for FCPA violations is a Who’s Who in the financial industry.  According to sources, the investigation is serious and focuses on a number of intermediaries who were retained by financial institutions to assist in securing valuable investment contracts with the Libyan Sovereign Wealth Funds.

The financial industry has suffered a one-two punch – money laundering and FCPA compliance.  They are under scrutiny and they have to take proactive steps to protect themselves.

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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