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05/25/2017

Civil Liability Imposed on Compliance Officer for Regulatory Misconduct

The pursuit by regulators to hold individuals accountable for the regulatory failings of the financial institutions where they work has been gaining momentum over the past few years. Regulators are increasingly emphasizing the importance of imposing liability on individuals who work at financial institutions at all levels, especially when their misconduct is intentional and knowingly carried out.  This bolsters the Department of Justice (“DOJ”) objective to hold individuals accountable for corporate misconduct as outlined in its September 2015 “Yates Memo”.

Settlement Action

Individual accountability in the area of Anti-Money Laundering (“AML”) was illustrated in the settlement of claims under the Bank Secrecy Act (“BSA”) against Thomas E. Haider, the former Chief Compliance Officer of MoneyGram International, Inc.  On May 4, 2017, the Financial Crimes Enforcement Network (“FinCEN”) and the U.S. Attorney’s Office for the Southern District of New York announced that Mr. Haider has agreed to a three-year injunction barring him from performing a compliance function for any money transmitter and has agreed to pay a $250,000 penalty. He also has admitted, acknowledged, and accepted responsibility for the following, among other things:

 

  • Failing to terminate specific MoneyGram outlets after being presented with information that strongly indicated that the outlets were complicit in consumer fraud schemes;

 

  • Failing to implement a policy for terminating outlets that posed a high risk of fraud; and,

 

  • Structuring MoneyGram’s anti-money laundering (“AML”) program such that information that MoneyGram’s Fraud Department had aggregated about outlets, including the number of reports of consumer fraud that particular outlets had accumulated over specific periods, was not generally provided to the MoneyGram analysts who were responsible for filing Suspicious Activity Reports (“SARs”).

 

This settlement concludes those actions commenced by FinCEN on December 18, 2014 when it assessed a $1 million civil monetary penalty against Mr. Haider, alleging his willful failure to ensure that MoneyGram: (a) implemented and maintained an effective AML program, and (b) filed timely SARs.

 

Civil Proceedings

In connection with this case, a federal district court held that the compliance officers of financial institutions can be held civilly liable for failing to ensure their institution’s compliance with the BSA’s AML provisions.  In U.S. Dep’t of Treasury v. Haider, No. 0:15-cv-01518 (D. Minn.), Mr. Haider principal argument in his motion to dismiss was that he could not be held liable under § 5318(h) of the BSA because it requires each regulated “financial institution” to establish AML programs. This requirement therefore applies only to financial institutions, rather than individuals. 

The court rejected Haider's argument, concluding that his focus on the text of § 5318(h) was misplaced. Instead, the court looked to the BSA's general civil penalty provision in § 5321(a), which permits FinCEN to assess civil penalties against a “partner, director, officer, or employee” of a financial institution for willful violations of the BSA.

 

Sia Partners

 

Sources

  1. https://www.justice.gov/usao-sdny/pr/acting-manhattan-us-attorney-announces-settlement-bank-secrecy-act-suit-against-former

 

  1. https://www.fincen.gov/news/news-releases/fincen-and-manhattan-us-attorney-announce-settlement-former-moneygram-executive
  • Key Takeaways

    • Regulators do not have to penalize a financial institution for AML violations in order to hold an individual, working at that financial institution, personally liable for AML misconduct.

     

    • Regulators can hold compliance officers and other individuals, of financial institutions, personally liable if they intentionally or knowingly fail to comply, implement, or maintain BSA’s AML provisions.

     

    • The fight against fraud and money laundering heavily relies on the cooperation and judgment of compliance officers and other individuals. Regulators are increasingly imposing civil liability to emphasize the importance that misuse of power may expose the U.S. financial markets to money laundering and terrorist financing.
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