On Thursday, March 8, 2018, the New York League of Independent Bankers (NYLIB) held its Winter 2018 Meeting. The evening featured a presentation by Thomas Lawler, a Senior Liaison Officer with the Financial Crimes Enforcement Network (FinCEN), as well as an update by Mr. Jeffrey Alberts, a partner at Pryor Cashman LLP and NYLIB’s Law Enforcement Liaison.

Enforcement Action Against U.S. Bank

Jeffrey Alberts

The evening began with Mr. Alberts giving a quick update concerning the recent enforcement action against U.S. Bank (the “Bank”).  On February 15, 2018, federal authorities, including FinCEN and the U.S. Department of Justice, filed charges against the Bank for allegedly neglecting its duties to monitor and report suspicious and potentially unlawful transactions.  The action alleges that the Bank set up its transaction monitoring software to provide only a certain number of alerts, based upon the number of people working in its compliance department.  Mr. Alberts explained that setting up a monitoring system as U.S. Bank did is not necessarily problematic, but that U.S. Bank was allegedly in further derogation of its BSA/AML duties.  For example, the action alleges that U.S. Bank conducted a look back to review its monitoring system’s work, but when it realized its system was not sufficiently flagging suspicious transactions, instead of fixing that system, the Bank simply halted the look back and attempted to keep negative information concerning the system from the regulators.

Mr. Alberts, discussed the difficulty that banks have in determining what an appropriate amount of alerts is, noting that no level of monitoring can catch every single suspicious transaction, but emphasizing that Banks cannot ignore signs that their suspicious activity monitoring system is deficient.

Thank you to Mr. Alberts for sharing this timely update and related analysis with NYLIB!

FinCEN BSA/AML Regulatory Perspective

Thomas Lawler

Mr. Lawler works with FinCEN’s Domestic Liaison Division and is based in Washington D.C.  The Liaison Division aims to better ensure industry compliance with the Bank Secrecy Act through supporting, overseeing, and working in partnership with the federal functional regulators, foreign financial intelligence units, and the state regulatory agencies that examine for BSA Compliance. Mr. Lawler’s duties include serving as the direct liaison to the Board of Governors of the Federal Reserve System, the FDIC, OCC, NCUA, and FFIEC.  Prior to joining FinCEN, Mr. Lawler spent over 20 years coordinating the Compliance, Risk Management, and Security divisions of two regional bank holding companies, as well as a state chartered credit union.

Mr. Lawler began by discussing the important work done by FinCEN.  He identified that FinCEN is in charge of administering the Bank Secrecy Act (“BSA”) and explained that it does so in large part by analyzing suspicious activity and other reports submitted by banks in order to identify trends and patterns in criminal activity and to uncover people and networks perpetrating those crimes.  Mr. Lawler explained that federal and state agencies across the United States utilize FinCEN’s data and analysis in order to assist them in prosecuting crimes in their jurisdictions.  For example, he noted that the FBI cites that approximately 30% of all the FBI’s drug and organized crime cases are initiated based on the information gained from financial institution reports filed with FinCEN.

Mr. Lawler next discussed FinCEN’s new beneficial ownership rules, which have a compliance date of May 11, 2018.  He stressed that financial institutions should give FinCEN comments concerning this and any other new regulations, explaining that if the agency does not receive comments, it generally assumes its regulations are “okay.” 

Mr. Lawler identified that the only truly “new” component of the regulation, was that, starting May 11, banks must request the identity of, and verify beneficial owners of new legal entity customer accounts.  However, he explained that institutions may rely on the information the entity provides them, and must simply request and receive the information unless the institution suspects that the information provided is not truthful.  Mr. Lawler then identified that FinCEN would soon be releasing FAQs addressing questions FinCEN had received about the new regulation

Mr. Lawler additionally discussed several FinCEN enforcement action case studies and provided those in attendance with detailed information concerning suspicious activity and other reporting from New York State financial institutions.

Q & A

At the conclusion of Mr. Lawler’s presentation, Mr. Lawler took numerous questions from those in attendance. For example:

• One attendee asked at what point FinCEN would join an investigation being conducted by another federal functional regulator. Mr. Lawler explained that when an institution is cited with a significant violation of the BSA, especially one involving allegations of a “systemic” or “willful” violation, then FinCEN will step in and collaborate with the federal functional regulator.

• Another attendee asked how FinCEN works with the functional regulators once it has joined an investigation. Mr. Lawler identified that FinCEN would be the lead AML regulator as it has more authority than the other regulators, but explained that—in the case of concurrent investigations—each regulator generally does their own, separate examination, and then the regulators discuss their findings and try to come to an agreement. Assuming the regulators come to an agreement, he noted, they would then give a joint presentation to the financial institution.

• In regards to the new beneficial ownership rules, another attendee asked Mr. Lawler whether, if a current legal entity customer of a financial institution opened a new account, the institution would need to again verify the identity of that customer. Mr. Lawler explained that, if the new account was opened within a certain time frame, the institution would likely either not have to re-verify, or would just need to check whether anything had changed, but noted that FinCEN was still in the process of codifying the answer to this question.

Thank you to Mr. Lawler for speaking with NYLIB!