Magazine article American Banker

AML Fines Mount: Root Causes and Next Steps: Trend toward Higher Penalties Seen Likely to Remain Intact

Magazine article American Banker

AML Fines Mount: Root Causes and Next Steps: Trend toward Higher Penalties Seen Likely to Remain Intact

Article excerpt

WASHINGTON -- Almost six years after the USA Patriot Act toughened banks' anti-laundering requirements, large banking companies continue to face massive fines for failures in their programs.

In interviews with top bank anti-laundering officials, industry representatives, consultants, and many others, no clear consensus emerged as to the reasons. Responses range from a defense of the industry, with some arguing that the Justice Department is overly aggressive and that the bar for compliance is too high, to a condemnation of financial institutions, with some saying bankers are too confident in their systems and have not fully embraced their heightened responsibilities.

However, all of those interviewed for this article agreed on one thing: More large fines are undoubtedly on their way.

"The bar has changed, and it continues to change and get higher and higher," said Ellen Zimiles, co-founder and chief executive officer of Daylight Forensic and Advisory LLC. "It means you can never rest. Every time you think you have it covered, you constantly have to update what you do."

In a little over a month two banking companies have received large fines for failure to comply with the Bank Secrecy Act. American Express Co. was fined $60 million last month, and Union Bank of California (which is majority owned by Mitsubishi UFJ Financial Group Inc.) was fined $31.6 million last week.

But the biggest fine is likely still to come. ABN Amro Holding NV, which was fined $80 million in December 2005 for problems in its anti-laundering system, disclosed in April that it may receive a second penalty of nearly $500 million. Such a fine not only would obliterate the record for a laundering penalty, but it also would be well over the combined amount regulators have assessed against banking companies for laundering problems since 2001.

In July, ABN Amro said it expected to enter a deferred prosecution agreement with the Justice Department covering its clearing activities, compliance with the Office of Foreign Assets Control, and other problems. Details of the agreement are still being worked out.

Industry insiders said they were aware of several other large fines expected to be assessed during the next few months, likely making 2007 a record year for anti-laundering penalties.

The list of companies fined by the government continues to grow and raises questions about the efficacy of the industry's anti-laundering efforts. Some analysts said the fines are the result of impatient regulators, who tolerated problems more readily immediately after 2001 but now feel like bankers have had plenty of time to adjust to their enhanced requirements.

Fines "will continue as long as certain banks are perceived as not keeping pace with regulators' expectations and their peers," said David Caruso, the CEO and managing director of Dominion Advisory Group LLC in Centerville, Va. "The regulators would expect that the banks would get it by now. How could they not? The Patriot Act became effective in 2002."

The act included a broad expansion of BSA guidelines to cover new industries, such as money-services businesses, and it broadened banker obligations, including additional know-your-customer requirements.

"It appears that certain institutions are still struggling with the part of the Patriot Act that requires an end-to-end anti-money-laundering program in banks, because most of the orders, if not all of them, document programmatic failures," said William Fox, a former Financial Crimes Enforcement Network director and now the head of Bank of America Corp.'s anti-laundering compliance.

Many in the industry complain that regulators expect too much, but Mr. Fox argues that compliance is possible. He also said there was no excuse for a bank that did not fix problems quickly if they were identified by regulators.

Recent fines have shown several companies did not handle government warnings properly. …

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