On April 30, 2020, the U.S. Department of Justice (“DOJ”) Money Laundering and Asset Recovery Section (“MLARS”) and the United States Attorney’s Office for the Eastern District of New York (“EDNY”) entered into a Non-Prosecution Agreement (“NPA”) with Bank Hapoalim B.M. (“BHBM”)—Israel’s largest bank—and its wholly-owned subsidiary, Hapoalim (Switzerland) Ltd. (“BHS”), collectively (“the Banks”). Under the NPA, the Banks agreed to forfeit $20,733,322 and pay a fine of $9,329,995, and MLARS and EDNY agreed not to criminally prosecute the Banks, or another wholly-owned subsidiary, Hapoalim (Latin America) S.A., for conspiracy to commit money laundering related to the Banks’ alleged roles in aiding bribe payments to soccer officials.
The money laundering investigation centered on whether the Banks facilitated bribes and kickbacks from Full Play Group S.A. (“Full Play)—an Argentinian sports media marketing business—to soccer officials associated with international soccer federations, including Fédération Internationale de Football Association (“FIFA”) and Confederación Sudamericana de Fútbol (“CONMEBOL”), in exchange for broadcasting rights. The investigation identified a failure at the Banks to “investigate and address indicia of money laundering and red flags raised by certain bank employees in connection with the various accounts held by Full Play and its affiliates.”
As discussed below, the Banks investigation, and several similar recent cases, highlight the need for banks and other financial institutions to examine their AML compliance programs to ensure that they both detect and prevent misconduct.
Bank Managers Had Direct Knowledge of the Bribery Schemes
The NPA discloses that at least two managers at the Banks conspired with Full Play and its affiliates to launder bribes and kickbacks to soccer officials. In exchange, the soccer officials steered the rights for soccer match and tournament broadcasting to Full Play. The payments were made from Full Play bank accounts at BHBM’s Miami, Florida branch. Often, the soccer officials opened accounts at that Miami branch to receive the bribes.
Call logs and e-mails from the Banks’ managers indicated that the managers had direct knowledge that Full Play’s payments to soccer officials were, in fact, bribes. One manager stated on a call that a soccer official’s initial payment to open his account was derived from Full Play’s payment in exchange for assistance “in obtaining the rights for the transmission of soccer matches throughout Colombia.” In another egregious example, an email exchange between two other managers states that the Full Play principals work with another bank to “handle the ‘bribes’ that they have to give, and hopefully it will continue [at the Banks] like that.”
In many instances, the Banks’ compliance program effectively flagged the transactions as potentially suspicious. However, one of the implicated managers was able to work around the compliance program by providing an explanation for the payments in question. In at least a few instances, the explanation itself raised red flags regarding the transaction. For example, the manager explained that a $200,000 payment to a currency exchange house was to pay a Bolivian soccer federation executive for broadcasting rights for the Bolivian National Team. Even though the manager stated that an executive was receiving payments for broadcasting rights, and that the payment was to be made via a third party, the payment was nonetheless ultimately approved by a compliance employee.
In addition, at least one BHS compliance employee repeatedly elevated concerns regarding the nature of Full Play’s payments to the conspiring managers. At one point, the compliance employee implored the manager to discuss the payments with the account holder so the bank could “fully understand the economic background of these payments,” and noted that “[t]he reputational risk in regards to this client (PEP) [Politically Exposed Person] for the bank is substantial.” Nevertheless, BHS continued to facilitate the payments.
This scenario helpfully illustrates the dual requirement of Chapter 8 of the Federal Sentencing Guidelines that, in order for a corporation to receive the benefit, at sentencing, of having an effective compliance program, the compliance function must successfully detect and prevent misconduct. BHS apparently had compliance staff sufficiently well-trained to detect the misconduct, although not to prevent the misconduct.
The Terms of the NPA
Among the obligations imposed under the three-year NPA, the Banks must (1) implement or continue to implement an Anti-Money Laundering (“AML”) program compliant with the Bank Secrecy Act (“BSA”) and other AML laws; (2) report annually to MLARS and EDNY regarding remediation and implementation of its AML measures; (3) close BHS and surrender its banking license; and (4) forfeit $20,733,322 (the full amount of the bribes paid through the bank) and pay a monetary penalty of $9,329,995.
The terms of the NPA are tailored to the specific circumstances of the case, including the “exemplary cooperation” and “extensive remedial measures” undertaken by the Banks. See Justice Manual, 9-28.700 (“The Value of Cooperation”). Here, the Banks’ cooperation efforts included:
- An extensive internal investigation, including the review of over 250,000 documents and hundreds of audio recordings, as well as providing key translations and transcriptions;
- Factual presentations to MLARS and EDNY on many topics, including sharing information regarding the individual wrongdoers (consistent with the guidance from the so-called “Yates Memo”);
- Production (including voluntary productions and compulsory production of foreign documents) of over 330,000 pages of documents;
- Making employees available for interviews and providing non-privileged summaries of witness interviews;
- Litigating in foreign courts to obtain permission to disclose certain information; and
- Keeping MLARS and EDNY informed regarding developments in the internal investigation and changes to the bank’s corporate structure.
In light of the Banks' significant remedial measures, MLARS and EDNY determined that an independent compliance monitor was not necessary as part of the resolution. These measures included:
- Exiting the private banking business outside of Israel;
- Closing Hapoalim (Latin America) S.A.;
- Closing the Banks’ Miami branch;
- Closing the Banks’ network of representative offices in Latin America; and
- Closing BHS and surrendering its banking license.
Implications for Compliance With AML Laws
The BHBM and BHS investigation, as well as other recent AML investigations, highlight the need for banks and other financial institutions (as broadly defined under the BSA) to ensure their AML programs are robust. It is not enough to have an operating AML program that identifies red flags; the AML program must effectively address the red flags to prevent misconduct. Identifying and preventing potential workarounds in the compliance program is a responsibility of the financial institution. Similarly, compliance personnel must be trained to be alert for rogue insiders who try to exploit those workarounds. Crucially, a system should be in place so that concerns that are elevated are addressed by competent compliance managers and not swept under the rug by potentially self-interested or corrupt business managers. As the BHBM and BHS case demonstrates, the actions by even a few bad actors that undermine a company’s compliance program can result in significant liability for the company.
- This NPA came on the same day the U.S. Attorney’s Office for the Southern District of New York announced BHBM’s guilty plea and agreement to pay $874.27 million in connection with an alleged tax-evasion conspiracy. See Israel’s Largest Bank, Bank Hapoalim, Admits to Conspiring with U.S. Taxpayers to Hide Assets and Income in Offshore Accounts, United States Department of Justice (Apr. 30, 2020), https://www.justice.gov/usao-sdny/pr/israel-s-largest-bank-bank-hapoalim-admits-conspiring-us-taxpayers-hide-assets-and. The timing is undoubtedly not coincidental, as coordinated global settlements are an efficient way for both regulators and corporate defendants to resolve multiple investigations by various jurisdictions.
- See U.S.S.G §8B2.1(a)(1).
- See Memorandum, “Individual Accountability for Corporate Wrongdoing,” Deputy Attorney General Sally Quillian Yates, U.S. Dep’t Justice (Sept. 9, 2015).
- This finding is consistent with DOJ’s May 18, 2017 NPA with Banamex USA, stating that, due to Banamex’s remediation, an independent compliance monitor was unnecessary.
- See, e.g.:
- Manhattan U.S. Attorney Announces Bank Secrecy Act Charges Against Kansas Broker Dealer, United States Department of Justice (Dec. 19, 2018), https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-announces-bank-secrecy-act-charges-against-kansas-broker-dealer (Central States Capital Markets, LLC was charged with one felony violation of the BSA alleging willful failure to file a Suspicious Activity Report (“SAR”); it agreed to pay a $400,000 penalty);
- Manhattan U.S. Attorney Announces Criminal Charges Against U.S. Bancorp for Violations of the Bank Secrecy Act, United States Department of Justice (Feb. 15, 2018), https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-announces-criminal-charges-against-us-bancorp-violations-bank (U.S. Bancorp was charged with two felony violations of the BSA by its subsidiary, U.S. Bank National Association, alleging willful failure to maintain an adequate AML program and willful failure to file an SAR; U.S. Bancorp agreed to pay a penalty of $528 million);
- Banamex USA Agrees to Forfeit $97 Million in Connection with Bank Secrecy Act Violations, United States Department of Justice (May 22, 2017), https://www.justice.gov/opa/pr/banamex-usa-agrees-forfeit-97-million-connection-bank-secrecy-act-violations (Banamex USA agreed to forfeit $97 million in a case involving allegations of BSA violations, including willful failure to maintain an effective AML program and willful failure to file SARs);
- Western Union Admits Anti-Money Laundering and Consumer Fraud Violations, Forfeits $586 Million in Settlement with Justice Department and Federal Trade Commission, United States Department of Justice (Jan. 19, 2017), https://www.justice.gov/opa/pr/western-union-admits-anti-money-laundering-and-consumer-fraud-violations-forfeits-586-million (Western Union agreed to forfeit $586 million in a case involving allegations of failure to maintain an effective AML program and aiding and abetting wire fraud).