The Agency Insider with Linda McGlasson

Spotlight on Money Laundering

Make No Mistake; the Regulators are Enforcing
Spotlight on Money Laundering

In the news about money laundering, HSBC Bank was slapped with a cease and desist order by its regulator, the Office of the Comptroller of the Currency, for non-compliance with Bank Secrecy Act requirements.

HSBC, a $186 billion asset bank, says it has stepped up efforts to improve its anti-money laundering monitoring. The OCC found that HSBC's BSA compliance program had deficiencies in the areas of suspicious activity reporting, the monitoring of bulk cash purchases and international funds transfers, as well as customer due diligence relating to foreign affiliates and risk assessment.

Why Anti-Money Laundering Matters

For the institutions who may think the BSA/AML compliance requirement is just about paperwork and the things that have happened at this bank are just isolated incidents, AML expert and former police investigator Kevin Sullivan has a message: "These are not so unique that they never happen to another institution again. Because usually what happens in one [bank] has got a good chance of happening in another one."

Sullivan recommends all institutions take the time to review and to analyze the issues involved in a major action, such as the one at HSBC, and see how well the individual institution stacks up.

The fine that HSBC could face may be substantial, and penalties have been stacking up on AML violations in the past couple of years. For example, the Office of Foreign Assets Control fines for non-compliance on tracking and monitoring people on the OFAC restricted and politically exposed person lists reached more than $500 million against institutions globally in 2009.

The larger banks tend to do a better job of monitoring and complying with BSA/AML requirements, including the OFAC list checks. One unfortunate problem happening now as a result of this is that the PEPs who were pushed out of larger banks are now migrating down to smaller community banks that don't have the same sophisticated monitoring or resources.

Federal banking regulators have not hidden their goal to tighten up examination of institutions when it comes to BSA and AML. They've made public statements and updated the FFIEC's AML examination handbook. The Obama administration has made it clear its targeting the bad guys with the formation of the Financial Fraud Enforcement Task Force. Also, the Financial Crimes Enforcement Network has issued reports on how banks are reporting suspicious activity reports, and it has extensive outreach to banks and money service businesses to educate them about the reporting requirements under BSA.

What other signs do institutions need to see before the realization sets in? The examiners are taking the crime of money laundering seriously. It's a loud and clear message: If you're in the business of banking, you must be 110 percent compliant with all parts of the BSA and all the other regulations that cover money laundering and the risks they present to institutions. Otherwise be ready to face the consequences.

Money laundering expert Debra Geister, Senior Director, AML and Compliance Services at Lexis Nexis, says that the majority of banks and credit unions want to do the right thing, and for the most part they are diligently following the requirements set forth in the regulations.

"What financial institution would not want to investigate suspicious activity reported, just doing the due diligence to protect the institution from the risk of harboring or abetting money laundering?" she says.

It just makes sense to protect the institution from such a risk.

About the Author

Linda McGlasson

Linda McGlasson

Managing Editor

Linda McGlasson is a seasoned writer and editor with 20 years of experience in writing for corporations, business publications and newspapers. She has worked in the Financial Services industry for more than 12 years. Most recently Linda headed information security awareness and training and the Computer Incident Response Team for Securities Industry Automation Corporation (SIAC), a subsidiary of the NYSE Group (NYX). As part of her role she developed infosec policy, developed new awareness testing and led the company's incident response team. In the last two years she's been involved with the Financial Services Information Sharing Analysis Center (FS-ISAC), editing its quarterly member newsletter and identifying speakers for member meetings.

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