What to Do When BSA Flubs Leave You Awash in Trouble: Here's a Walkthrough of the Decision Process a Hypothetical Bank Might Go through When Anti-Money-Laundering Compliance Falters

Article excerpt

During last fall's Money Laundering Enforcement Conference, bankers and lawyers were handed an intriguing puzzle.

Instead of having some regulator or pundit present a closing speech to the gathering, sponsored by the American Bankers and American Bar Associations, a panel of experts discussed, roundtable fashion, their favored approaches to a troublesome situation.

You can "role-play along" by reading a summary of each development in the case (based on the materials presented by the panel). (The 2006 conference takes place Oct. 8-10 in Washington, D.C.)

INTERNAL AUDIT UNCOVERS A PROBLEM

The bank's BSA compliance officer has advised the bank's new in-house counsel that the recent BSA internal audit has flagged several deficiencies in the BSA/AML compliance program. These include currency transaction report (CTR) issues relating to outsourced cash vault services; customer identification program issues; and money service business due diligence and monitoring issues. The in-house counsel is especially concerned because the bank's federal regulator is starting its annual BSA/AML exam in four weeks.

He has been asked to arrange a meeting between the bank's legal, compliance, and possibly also its business staff; the bank's regulator; and, if appropriate, a representative from FinCEN (Treasury's Financial Crimes Enforcement Network).

He must also help the bank decide on the ideal timing of this meeting, and is considering steps to identify the causes and extent of the compliance problems. He is hoping to be able to recommend certain preemptive steps that will minimize the bank's exposure.

Even without the pending direct involvement of the regulators, this will be a dicey case, the panelists agreed. It is a virtual certainty that the bank will find shortcomings in its program once it begins looking, said Ian Comisky, partner, Blank, Rome LLP, Philadelphia. "I agree that you have to begin looking, but you're going to find something."

Should the bank get the relevant business unit head embroiled in the investigation yet? Comisky isn't so sure that's wise. If there has been money-laundering going on, instead of just poor compliance, sniffing around the business unit too much might lead the head of the unit to resign and disappear, if they have been cooperating with criminals. This might keep the bank from learning more of the basic facts that only the unit manager might provide.

On the other hand, you might want to sacrifice the broader fact base to the spirit of the law--preventing money laundering.

"If I had somebody on staff who overrode regulations to assist an illegal act, I'd want them out of that branch, sooner, rather than later," said Irwin Nack, director of anti-money-laundering and regulatory affairs, Hudson United Bank, Mahwah, N.J.

The panel also discussed what the bank should be thinking about doing with information uncovered during its own investigation. For instance, should it volunteer in great detail to the regulator where and how the bank has erred?

Arguing for that was Peter Djinis, partner, Law Offices of Peter Djinis, McLean, Va., and a former Treasury anti-money-laundering official. He argued the times and the tone of the new money-laundering exam manual supports revealing violations to examiners. From his viewpoint, the bank should even be revealing how many SARs it has found that it failed to file.

Arguing against such candid disclosure was Irwin Nack. "I'm not aware of anything [in the law and regulations] that says that you have to report every single transgression to the regulators," said Nack.

"I don't think they even want it," Nack added.

THE OUTSOURCED CASH VAULT CONUNDRUM

Identification and reporting of multiple currency transactions over $I0,000 is classic BSA compliance, and your bank has long had an automated system in place. During the last exam, regulators discovered some minor glitches in the bank's aggregation software, and these, the only issues to come up at all in that exam, have been fixed. …

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