Academic journal article The University of Memphis Law Review

Financial Crimes Compliance Self-Governance: Applying the Faragher Defense to Bank Secrecy Act/Anti-Money Laundering Violations

Academic journal article The University of Memphis Law Review

Financial Crimes Compliance Self-Governance: Applying the Faragher Defense to Bank Secrecy Act/Anti-Money Laundering Violations

Article excerpt

I. Introduction

Financial institutions in the United States have been subject to, and having been working toward compliance with, anti-money laundering ("AML") regulations since the 1970s.1 Subsequent additions and clarifications from congress and regulatory agencies have produced a broad and expansive set of rules pertaining to the responsibility of financial institutions to monitor, prevent, and detect money laundering and terrorist financing. compliance with these regulatory requirements has become a pervasive issue in the post-9/11 financial system, with regulatory scrutiny of the financial industry and institutionally driven enterprise scrutiny seeming to intensify each year.2 A record number of enforcement actions have been brought against financial institutions in recent years-banks and non-banks alike-for perceived failures in those institutions' compliance programs, with fines reaching into the billions of dollars.3 Although regulatory scrutiny seems to be increasing, some have questioned whether continued enforcement actions are the best tactics for ensuring AML compliance in the financial industry.

This Article does not advocate that financial institutions do not have a responsibility to comply with the laws of the nations in which they operate, or that BSA/AML regulatory requirements are superfluous. The question is whether continued public regulatory actions are appropriate vehicles for furthering the public policy underpinning of the immense framework of BSA/AML regulations. Instead, this Article will introduce the idea that an affirmative defense, on which financial institutions can rely when they detect and correct potential failures in their own compliance programs, would further advance the goals of federal and international anti-money laundering and terrorist financing laws. An affirmative defense that rewards a compliance program dedicated to self-governance provides a better impetus for financial institutions to strengthen anti-money laundering/counter-terrorism financing ("AML/CTF") controls than the current practice of relying on large fines and regulatory enforcement actions. Specifically, allowing banks the latitude to develop, monitor, and validate would more likely result in a selfsustaining compliance feedback loop; increase the likelihood of industry self-enforcement to decrease reputational, legal, and credit risk; and would lead to greater compliance than continued public admonishments of banks with compliance programs already in place.

Part II will introduce and discuss a common safe harbor defense from employment law that lawmakers could deploy in the world of financial regulation in a manner consistent with the public policy underpinning of both disciplines of law. Part III of this Article will briefly explore the history of the AML regulatory framework in the United States, paying particular attention to the public policy underpinning of and common practices within financial institutions' financial crimes compliance divisions. Part IV will examine whether there is a link between the creation of an affirmative defense in employment law and the proposed creation of an affirmative defense in BSA/AML compliance to determine if such a proposal would enhance the public policy objectives of financial regulations. The Article concludes by encouraging review of the current framework for BSA/AML compliance to determine whether such a safe harbor would better achieve the goals of financial regulation than would reliance on federal and state enforcement actions against financial institutions for perceived failures in compliance programs.

II. Employing the Faragher Defense

The creation of an affirmative defense to protect financial institutions that make good-faith efforts to comply with BSA/AML regulations would be a more significant assurance of compliance than federal or state enforcement actions. Although the concept of an affirmative defense in BSA/AML compliance would be somewhat new, employment law has a well-recognized affirmative defense that shares many of the goals of financial compliance. …

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