Breuer Remarks to ABA Money Laundering Conference

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Remarks of

Lanny A. Breuer

Assistant Attorney General

Criminal Division

United States Department of Justice

22nd

ABA/ABA Money

Laundering Enforcement Conference

October 19, 2010

Washington D.C.

I. IntroductionThank you for that kind introduction, Rob. Its a pleasure for me to be here today. I want

to thank the American Bankers Association and the American Bar Association for this

opportunity to speak with you.

Over the last quarter century, asset forfeiture and money laundering prosecutions havebecome integral to our countrys law enforcement strategy. Whether it takes the form of drugtrafficking, fraud, or corruption, crime is very bluntly a business. And like any business, itrequires capital. When we forfeit the proceeds of crime and vigorously prosecute violations ofour money laundering laws, we take the profit out of crime and deny criminal organizations theresources they need to survive.

But because crime is a business and because criminals must constantly hide, move, andaccess their money they will always look for, and seek to exploit, vulnerabilities in ourfinancial system or weaknesses in a banks compliance structure. Thankfully, most bankers arecommitted to keeping dirty money out of their institutions. They know it is bad for business; badfor their reputations; and bad for the integrity of our banking system. Frankly, they know it isjust plain wrong. That commitment to protecting our banks is the very reason that so many ofyou are gathered here for this important conference and I applaud you. Yet, this view is notshared by all. Indeed, the Justice Department has recently prosecuted several cases wherecompliance was simply ignored and short-term profits were put ahead of doing what was right.

We have learned much from these prosecutions. When compliance officers dont do theirjobs effectively, our first line of defense is breached. When financial institutions are ambivalentabout fostering a culture of compliance or when they fail to devote the necessary resources totheir Bank Secrecy Act and anti-money laundering programs criminals are able to inject dirtymoney into our banks and, worse, use that money to advance their illegal activity.

For these reasons, all of you play a critical role in our efforts. Money laundering schemessucceed, and criminal enterprises thrive, only when law enforcement is not in a position to detectthe dirty money moving surreptitiously through our banks. But you can be our eyes and ears.

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Today, I would like to speak with you about how the Justice Department is aggressivelydeploying its resources to prosecute those who threaten the integrity of our financial system.And, I want to describe how you can be our partner in that fight.

II. Reinvigorated Criminal EnforcementTen years ago, there were no criminal enforcement actions, or even serious regulatory

penalties, for the failure of banks to file Suspicious Activity Reports or comply with the BankSecrecy Act. Indeed, the first civil penalty against a bank for failing to file SARs was imposedonly in September of 2002.

Happily, things have changed. Since that first civil penalty in 2002, the JusticeDepartment has undertaken a series of investigations of financial institutions, resulting either inthe criminal conviction or deferred prosecution of at least 15 different banks among themLloyds, Credit Suisse, Wachovia, and Barclays. Moreover, in the last three years alone, ourprosecutions of banks have resulted in forfeitures of nearly $1.5 billion dollars.

In bringing these enforcement actions, we have not just focused on large banks. Indeed,the banks have run the full gamut from Pamrapo Savings Bank, a small community bank inNew Jersey that pleaded guilty earlier this year to conspiring to violate the Bank Secrecy Act, tobanking giant Wachovia, which admitted in March in a deferred prosecution agreement to failingto establish an anti-money laundering program.

In both of these cases to put it very plainly the institutions abdicated their roles asresponsible gatekeepers to the American banking system. Pamrapo, for example, admitted tofailing to file CTRs and SARs related to approximately $35 million in illegal and suspicioustransactions, including more than $5 million in structured currency transactions. Wachoviaadmitted to allowing at least $110 million of drug proceeds to flow unimpeded through itsaccounts. As seen in just these two cases, the amount of dirty money that can move through asingle bank can be staggering.

It is not surprising, then, that the use by criminals of our banking system to laundermoney poses a significant criminal threat. All you have to do is look at the cartel-drivenbloodshed in Mexico, the damage that organized crime syndicates can inflict on ourcommunities, and the millions of dollars that Americans lose each year to fraud, to see why theJustice Department is so committed to prosecuting and punishing money launderers.

Money laundering, moreover, is not the only concern we as law enforcement have whenwe talk about protecting the integrity of our banks. Indeed, we have been equally vigilant aboutgoing after those banks that have, for their own profit, purposefully violated U.S. sanctionsagainst certain countries sanctions that are meant not only to protect our banks, but also toaffirmatively block specific countries from using our financial institutions. Last year, forexample, Credit Suisse admitted to systematically evading over the course of a decade U.S.sanctions against Iran, Sudan, Burma, Libya, and Cuba. Credit Suisse set up a system somemight even call it a business plan to deceive the United States by disguising its U.S. dollarclearing on behalf of countries that the United States had banned from our financial system. The

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banks actions ranged from stripping out the word Iran from payment messages, to substitutingcode words for Iranian customer names, to hand-checking payment messages from Iran to ensurethat they had been formatted to avoid U.S. sanctions filters. Credit Suisse even advised andtrained the sanctioned entities on how to avoid automated filters at U.S. banks. In essence,evading our banking regulations was a service offered by Credit Suisse to sanctioned countries.

As a result, Credit Suisse illegally moved hundreds of millions of dollars through the Americanfinancial system. As part of a deferred prosecution agreement with the Justice Departmentrelating to this conduct, Credit Suisse forfeited $536 million dollars to the government.

In each of the cases I just described, the banks compliance processes fell far short. Now,I am very aware that at many banks, Bank Secrecy Act and anti-money launderingresponsibilities are considered a cost-center. Setting up an effective compliance program todetect and report suspicious activity means accruing significant expenses for technology,personnel, and training all without the promise of any short-term profits. But if there is onemessage I want to leave you with today, it is that financial institutions simply cannot cut cornerson compliance: having a compliance program that works is worth it. Indeed, as our recent

prosecutions show, failing to adopt and maintain a real compliance structure will have seriousconsequences. Frankly, not having a robust compliance program makes absolutely no businesssense.

III. Our New InitiativesNow, more than ever, the American public wants, and deserves, trust and transparency

from the financial industry. The public wants to see profits, of course, but notat the expense ofthe security of our banks. To that end, I want to talk with you today about two new initiativesthat I believe will significantly enhance the Justice Departments enforcement efforts. Twoinitiatives that I am proud of.

First is the creation of the Money Laundering and Bank Integrity Unit within theCriminal Divisions Asset Forfeiture and Money Laundering Section. The creation of this Unitis a testament to, and builds upon, our recent enforcement successes. The new Unit will bedevoted to investigating complex, national and international criminal cases, and will focus onthree specific types of violators: first, financial institutions, including their officers, managers,and employees, when their actions violate the law; second, professional money launderers whosell their services to criminal organizations; and third, those engaged in using the latest and mostsophisticated money laundering techniques, such as virtual currency and mobile paymentsystems. By standing up this new Unit, we are committing significant resources, and expertise,to prosecuting those who funnel crime proceeds through our banks. Moreover, we are seeking tostaff the Unit with sophisticated, talented and aggressive lawyers prosecutors and lawyers fromthe banking industry those who know the complicated mechanisms by which money movesthrough the global financial system, and those who understand how organized criminal networkswork.

Our second new initiative is the Kleptocracy Asset Recovery Initiative, which will targetand recover the proceeds of foreign official corruption that have been laundered into or throughthe United States. In November of last year, at the Global Forum on Fighting Corruption and

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Safeguarding Integrity, in Qatar, Attorney General Holder pledged to redouble the U.S.commitment to recovering foreign corruption proceeds. This Initiative represents a concrete steptoward fulfilling that commitment. The Kleptocracy Initiative will involve three key sections inthe Criminal Division: the Asset Forfeiture and Money Laundering Section, which will lead it,and the Office of International Affairs and the Fraud Section, which will provide critical support.

Once fully implemented, this Initiative will allow the Department to recover assets on behalf ofcountries victimized by high-level corruption, building on the Justice Departments alreadyrobust enforcement of the Foreign Corrupt Practices Act. Through the Kleptocracy Initiative, theDepartment will ensure that corrupt leaders cannot seek safe haven in the United States for theirstolen wealth. And, if we uncover such wealth, the Justice Department will forfeit and returnthis stolen money to its rightful owners the people and governments from whom it was taken.

IV. Enhanced Enforcement Against IndividualsIn addition to these new initiatives, and in conjunction with our already vigorous

enforcement efforts against financial institutions themselves, individual wrongdoers must beprosecuted and sent to jail when they play a role in the illegal conduct of the banks for whichthey work. Naturally, no company can act criminally without some action by individuals. Andwe are acutely aware that we cannot allow companies to be seen as taking the fall forexecutives who may have violated the law. Yet, we are also cognizant of the challenges inproving the criminal liability of any single person where the real problem in a particular financialinstitution may be a systemic failure to build a true compliance program. It is not surprising,then, that the decision whether to prosecute an individual, an entity, or both, is one we have tomake very carefully.

As our recent record shows, we are not reluctant to bring criminal charges againstexecutives when they put at risk the stability of their financial institutions. This past June, forexample, the Justice Department obtained an indictment against Lee Bentley Farkas, the formerchairman of Taylor, Bean & Whitaker Mortgage Corporation. TBW, as it is called, was onceone of the largest private mortgage companies in the United States. Mr. Farkas was charged withperpetrating a massive fraud scheme that resulted in losses exceeding $1.9 billion and thatcontributed to the failure not just of TBW, but also of Colonial Bank, one of the 50 largest banksin the United States before its collapse in 2009.

Similarly, this past July, in a prosecution brought by the U.S. Attorneys Office inAtlanta, two vice presidents of Integrity Bank, a $1 billion financial institution, pleaded guilty tovarious crimes. The banks former vice president in charge of risk management, Joseph Foster,pleaded guilty to insider trading of Integrity stock. He admitted to knowing that the bank faced agrowing risk that a debtor would default on $80 million in outstanding loans, and sold his stockanyway. In the same case, Integritys former executive vice president in charge of lending,Douglas Ballard, admitted to conspiring with a major bank customer to provide bogus loans inexchange for cash bribes.

The Integrity and Colonial Bank investigations are just a couple of examples of theDepartments commitment to prosecuting individuals who cheat, deceive, and defraud.

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Although not every investigation of a financial institution will result in the indictment ofindividual executives, we will not let individuals escape from punishment when theyintentionally violate the laws that are meant to protect our financial system.

V. The Benefits of CooperationBefore I end, let me discuss with you one additional, and important, issue: the critical

decision that all of you face about how and whether to cooperate with the government when theinstitutions for which you work are faced with evidence of illegal conduct.

I have said many times before, and I say to you again now, we wantcompanies thatuncover illegal conduct to come forward voluntarily. Put very simply, if you come forward andfully cooperate with our investigation, you will receive meaningful credit. Meaningful creditdoes not mean a free pass for doing the right thing. But, self-reporting and cooperation do carrysignificant incentives. Indeed, many options are available to the Justice Department short ofprosecution when a banking entity has been truly cooperative: no charges may be brought at all,

or we may agree to a deferred prosecution agreement or non-prosecution agreement, sentencingcredit, or a below-Guidelines fine. Ultimately, every case requires an assessment of theparticular facts, as well as the severity and pervasiveness of the conduct and the quality of thebanks compliance program. But, in every case of self-disclosure, full cooperation, andremediation, the Department is committed to giving credit where its deserved.

The recent resolution of the Barclays Bank matter is a concrete example of what I meanby meaningful credit. In May 2006, Barclays voluntarily disclosed to the Office of ForeignAssets Control four transactions that violated U.S. sanctions. At that time, Barclays commenceda limited internal investigation into the operation and limitations of its automated filtering systemand, in November 2006, the bank exited all relevant relationships with banks subject to U.S.economic sanctions, banks headquartered in sanctioned countries, and the subsidiaries of suchbanks. In 2007, after being contacted by federal and state prosecutors, Barclays agreed tocooperate fully and broadened its review to include a comprehensive internal investigationcovering the preceding seven years.

Barclays promptly shared the results of its internal investigation with the Department andthe Manhattan District Attorneys Office, as well as with OFAC, and Barclays U.S. bankingregulators the Federal Reserve and the New York State Banking Department. And, mostimportant, from the beginning of the investigation, Barclays took full responsibility for itsconduct. The case was resolved through a deferred prosecution agreement with a term of twoyears, a forfeiture of $298 million, and compliance by the bank for a period of two yearsoverseen by the Justice Department, OFAC, and the Federal Reserve in coordination with theUKs Financial Services Authority.

As seen by our prosecution of Barclays, real cooperation has real benefits. At the sametime, cooperation didnt result in amnesty, nor should it have. Indeed, while a deferredprosecution is a second chance of sorts for an institution, any bank that is subject to deferredprosecution must understand that it must live up to the terms of its agreement. If a bank subjectto a DPA fails to implement a state-of the-art compliance program, does not live up to its

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promise of full cooperation, or commits any other crime during the term of the agreement, it willbe prosecuted for all of its conduct.

VI. ConclusionThe Department of Justice is committed to punishing and deterring illegal conduct in ourfinancial system. But the Department cannot and does not do this work alone. Indeed,

nowhere is cooperation among our public and private sector partners more vital than in fightingthe increasingly interconnected groups that traffic in drugs, run organized crime syndicates, andcommit fraud and then try to use our banks to hide and move their crime proceeds. Of course,nothing we do will make us invulnerable, but we can become less vulnerable if we worktogether.

I want to thank you for all the work you do. You are the gatekeepers of our financialsystem, and you have a daunting task. But the challenges you face cannot be an excuse. Youmust institute robust anti-money laundering and compliance programs in order to prevent dirty

money from entering our banking system. And, if you uncover evidence of illegal conduct inyour institutions, we need you to come forward.

The Justice Department continues to work hard to zero in on the profits of crime, and thenew Bank Integrity Unit and Kleptocracy Initiative Ive described today are significantadditional steps in that direction. We hope, and expect, that you will do your best to partner withus on this essential mission.

Thank you so much for having me here today.

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Breuer Remarks to ABA Money Laundering Conference