On April 27, 2011, the U.S. Department of Justice announced that it had entered into a deferred prosecution agreement with CommunityONE Bank, N.A., which is based in Asheboro, North Carolina. The Justice Department’s announcement is the latest development in the area of AML enforcement since Assistant Attorney General Lanny Breuer’s creation of the Money Laundering and Bank Integrity Unit within the Criminal Division’s Asset Forfeiture and Money Laundering Section.
The Bank Integrity Unit, as Mr. Breuer called it for short in a speech before a joint conference of the American Bankers’ Association and the American Bar Association, was established to focus criminal investigation and prosecution efforts on three types of money laundering violators: (1) financial institutions, including officers and other employees; (2) professional money launderers who service criminal organizations; and (3) persons engaged in money laundering using sophisticated techniques, such as virtual currency and mobile payment systems. Mr. Breuer acknowledged that effective compliance programs are costly, but he stated that, considering the Justice Department’s record of going after banks – big and small – for inadequate AML compliance programs, it makes business sense for banks to get into compliance.
In light of the Justice Department’s deferred prosecution agreement with Wachovia Bank, N.A., in which Wachovia was required to pay $160 million in forfeited funds and civil monetary penalties in March 2010 for lapses in AML compliance, it is understandable that the Department would take every opportunity to remind financial institutions of their Bank Secrecy Act obligations. However, no less an AML compliance authority than John Byrne, who, since 2010, has served as Executive Vice President of the Association of Certified Anti-Money Laundering Specialists (ACAMS), was taken aback by a warning of sorts issued by Mr. Breuer to the conference attendees. Mr. Breuer stated that if there was one message he could leave with the audience, it would be that “financial institutions simply cannot cut corners on compliance [because] having a compliance program that works is worth it. . . . [and] failing to adopt and maintain a real compliance structure will have serious consequences.” Mr. Byrne, who works closely with all types of financial institutions, wonders what prompted Mr. Breuer to fire such a “shot across the bows” at an industry that is so committed to AML compliance.
Committed or not, financial institutions must acknowledge that the compliance obligation is a continuous one. It requires, at a minimum, periodic risk assessments, training, recordkeeping, reporting, and audits, as well as necessary adjustments in order to keep pace with the criminals who would use the financial institution to commit crime and to conceal the origin of illicit funds. The failure of CommunityONE Bank to take these steps led to criminal prosecution, culminating with an agreement deferring prosecution in the Western District of North Carolina. In its deferred prosecution agreement, the bank agreed to pay restitution to victims of an investment fraud scheme run through the bank by an individual who was convicted of fraud in December 2010.
It is abundantly clear that the Justice Department is increasing its enforcement of Bank Secrecy Act requirements against financial institutions of all sizes. As a result, banks and other financial institutions covered by the Bank Secrecy Act can no longer claim to be the victims of fraud under circumstances in which the underlying misconduct could have been detected, and perhaps even prevented, with a robust AML compliance program.
In the words of Anne Tompkins, the U.S. Attorney for the Western District of North Carolina, “Banks asleep at the switch need to wake up. . . . [T]he Bank Secrecy Act applies to more than just drug and terrorist financing.”
Now that’s a warning.