Too Big To Jail? Well, Maybe Not
According to a Reuter’s news article, dated March 22, 2013, The U.S. Treasury is changing its previous posture and plans to hold bankers personally responsible (including subjecting them to fines/penalties and potential criminal prosecution) when their banks help sanctioned parties such as the Iranian Government or the Assad regime in Syria evade economic sanctions. This shift appears to be in line with similarly recently declared intentions by the U.S. Treasury to also hold individual bankers accountable (read: “liable”) for failures to prevent the laundering of money related to narcotics trafficking or other criminal proceeds.
This places a significantly greater burden on compliance officers and their staffs to make sure that the operational areas within their institutions are implementing and following sound business practices to meet their regulatory obligations. It also sets financial industry compliance efforts on a dangerously slippery slope, in that every action by a compliance officer is now accompanied by ever-increasing risks.
Don’t get us wrong… we are all for development and implementation of solid, effective efforts to avert fraud, financial crime and corruption—both by financial institutions as well as corporations and individuals. After all, we help financial institutions and corporate entities improve their regulatory and operational processes to reduce their risks and improve performance in order to achieve greater results.
However, this does raise some legitimate questions about the fine line between holding people and organizations responsible for their wrongdoings and making examples out of some to drive an agenda or prove a point.
No one (that we know of anyway) would support anyone who deliberately acts to egregiously circumvent sanctions or anti-money laundering regulations – particularly when such activities are by or on behalf of rogue regimes, terrorists or narcotics traffickers – to name just a few types of “less than desirable” business partners in the world today. But it does (and it should) spark conversation about this in several contexts: How does one accurately and honestly define the differences between failures of processes as compared to willful circumvention of the system?
Does a singular failure mean that compliance officers will be carried off to the gallows?
What is the correct proper punishment when regulatory environments encounter failures in these areas?
Although sanctions enforcement cases and AML Compliance shortcomings involving financial institutions have typically concluded with civil money penalties at the corporate level, it is clear that we are entering into a new era in regulatory compliance and enforcement or laws and regulations.
The Office of Foreign Asset Control (OFAC) has the lead responsibility to both administer and enforce economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threat to the national security, foreign policy or economy of the United States. One reason that the OFAC may have not gone further than civil money penalties in some of these recent cases is that it must rely on the cooperation of foreign banks —making their jurisdiction over foreign banks tenuous at best.
In recent US Senate testimony, David Cohen, U.S. Treasury undersecretary for terrorism and financial intelligence revealed that he has instructed FinCEN (Financial Crimes Enforcement Network) to look more closely at existing civil powers that could be used to hold financial institutions’ “partners, directors, officers and employees responsible for lapses that have allowed laundering of financial crime proceeds. The move to include OFAC in these processes appears to be a follow up to the undersecretary’s efforts in this regard.
Therefore, now is a good time to make sure that your trade and sanctions compliance processes and procedures are not only up to date, but that they are effective in helping your organization to meet your regulatory compliance and risk management objectives. An independent assessment of your program by a qualified professional with subject matter expertise in the Sanctions and AML Compliance can go a long way in helping you to objectively assess your program and make any necessary adjustments to meet your objectives.
It is also critical that officers and directors are educated and involved in how the organizations that they lead are addressing these challenges. This applies both to organizations in the financial sector and to corporate entities alike.