Compliance Failures Result in Million-Dollar Fines and a Jail Sentence for AML Compliance Officers

Manatt, Phelps & Phillips, LLP

Why it matters

In two separate actions in a two-day period at the end of 2014, one former BSA/AML compliance officer was sentenced to two years in prison and forfeited almost $1 million and another was fined $1 million and threatened with a permanent ban from the financial services industry. In both cases, while the alleged facts were seemingly egregious, the underlying themes prove instructional for understanding the evolving expectations of BSA/AML compliance officers.

The failure to implement and maintain an effective anti-money laundering (AML) and Bank Secrecy Act (BSA) program will cost the former Chief Compliance Officer of a money services business $1 million – and potentially his future employment in the financial industry. The Financial Crimes Enforcement Network (FinCEN) assessed a civil money penalty against Thomas E. Haider, alleging that over a five-year period as chair of the Fraud and Compliance Departments at MoneyGram, he failed to implement and maintain an effective AML program and neglected to comply with BSA requirements to report suspicious activity despite numerous complaints about scams being operated through the company’s system. Haider’s “inaction led to thousands of innocent individuals being duped out of millions of dollars,” the regulator said. Concurrently with FinCEN’s announcement, the U.S. Attorney’s Office in the Southern District of New York filed a complaint to enforce the penalty and enjoin Haider from future employment in the financial industry.

Detailed discussion

Thomas E. Haider served as the Chief Compliance Officer for MoneyGram International from 2003 to 2008. During that time, Haider oversaw both the Fraud and Compliance Departments for the company.

In his position with the Fraud Department, Haider was aware of “thousands of complaints” from consumers who were victims of fraudulent schemes, FinCEN said. For example, customers reported sending money through MoneyGram as a result of solicitations informing them they had won a lottery, been hired for a “secret shopper” program, been approved for a guaranteed loan, or won a cash prize.

The scams operated by having consumers send up-front fees (ostensibly to pay for shipping or taxes) to a fictitious payee using MoneyGram’s money transmission network. Although Haider could have suspended or terminated any agent participating in illegal activity, he failed to implement a discipline policy, conduct effective audits, or terminate known high-risk agents or outlets, the regulator said. As a result, consumers lost millions of dollars.

Charged with ensuring compliance under the BSA in his role as head of the Compliance Department, Haider again failed in his responsibilities, FinCEN said. He did not ensure the filing of suspicious activity reports (SARs) on agents that he knew or had reason to suspect were engaged in fraud, money laundering, or other criminal activity.

“By failing to file SARs, despite having extensive information regarding complicit MoneyGram outlets and the evident victimization of MoneyGram’s customers, he denied critical information to law enforcement which could have been used to combat the fraud and dismantle the criminal networks,” according to FinCEN.

For his willful violations, FinCEN assessed a $1 million civil money penalty against Haider. The complaint filed in New York federal court seeks enforcement of the penalty as well as a judicial order enjoining “Haider from participating, directly or indirectly, in the conduct of the affairs of any ‘financial institution.’”

The Haider case is likely the last phase of this multiyear matter that saw MoneyGram fined $18 million by the Federal Trade Commission in 2009 for unfair and deceptive practices due to unacceptable oversight and management of its agents. In 2013 the company subsequently entered into a deferred prosecution agreement with the U.S. Department of Justice for aiding and abetting wire fraud and failure to maintain an effective AML compliance program. The company paid a fine of $100 million in connection with that agreement.

In another action one day before this case was made public, a federal judge sentenced a 25-year-old Bitcoin entrepreneur for his role in aiding and abetting an unregistered money services business. Charlie Shrem, who was both Founder and BSA/AML Compliance Officer for BitInstant, a New York-based Bitcoin exchange, had appropriately registered his company as a money services business but was allegedly helping another, unregistered company in its operations. Although he had implemented an AML compliance program, he had allegedly failed to file SARs on the illegal activity being conducted by the company he was aiding and abetting. The prosecution requested the court to “send a clear message to other digital currency exchange businesses” that flouting AML rules comes with consequences. He was sentenced to two years in prison.

To read the complaint in U.S. Department of Treasury v. Haider, click here.

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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Manatt, Phelps & Phillips, LLP

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