Enforcement Actions and Penalties

Wyn ClarkU.S. Treasury

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Overview Civil Penalties Criminal Penalties Enforcement Actions OFAC Penalties Examples Money Service Businesses Casinos Case Study

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Civil Penalties

CMPs for banks, employees, partners, directors or officers for BSA/AML related violations or findings

31 CFR 103.57 – Reporting and Recordkeeping Up to $100M or amount involved

12 USC 1955 – Financial Recordkeeping Up to $10M

31 USC 5321 Records and Reports on Monetary instrument Transactions $25M or amount of transaction up to $100M

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Criminal Penalties 31 CFR 103 – Reporting and Recordkeeping

Up to $250M fine Up to 5 years in prison Up to $500M and 10 years if pattern of criminal activity

12 USC 1956 – Financial recordkeeping Up to $1M fine Up to 1 year in prison Up to $10M and 5 years if pattern of criminal activity

31 USC 5322 Records and Reports on monetary instrument transactions

Person - Up to $500M and 10 years Institution – Up to $1MM

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Communicating Supervisory Concerns Verbal Comments

Informal with management during exam Formal with the Board during or after exam

Supervisory letter to management Finding in Report of Exam or other

communication to the Board Deficiencies or weakness Violation of regulation(s)

Enforcement Actions

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Enforcement Actions Informal Enforcement Actions

Not serious, but need Board written commitment

Not disclosed to the public Commitment letters, memoranda of

understanding Formal Enforcement Actions

More serious issues, some enforceable in Federal courts

Disclosed to the Public Failure to comply can result in CMPs

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Enforcement ActionsBanks Cease & Desist Orders (C&D) Civil Money Penalty Orders (BCMP) Formal Agreements (FA) Prompt Corrective Action Directives (PCAD) Safety & Soundness Orders (SASO) Securities Enforcement Actions (SEB)

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Enforcement ActionsInstitution Affiliated Parties (IAPs) 1829 "Removals" (1829) Cease & Desist Orders against Individuals

(PC&D) CMP Orders against Individuals (CMP) Formal Agreements (FA) Removal/Prohibition Orders (REM) Restitution Orders (REST) Securities Enforcement Actions against

Individuals (SEI)

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Joint Interagency Statement

Issued by the primary federal bank regulators (FRB, FDIC, OCC, OTS,NCUA)

Provides consistent BSA compliance regulations regarding examinations and BSA compliance requirements

Provides consistent policy under which a Cease and Desist order will be issued

Failure to establish and maintain a BSA compliance program

Failure to correct problem previously reported to the bank

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Who can impose enforcement actions and/or CMPs? FinCEN

Authority under the BSA Federal Bank Regulators

Authority under 12 USC 1818(i)(2) 12 USC 1786(k)(2)

Department of Justice State Banking Regulators OFAC DOJ 10

FinCEN

44 cases since 1999 on FinCEN website of enforcement actions Banks, Casinos, stores, MSBs www.fincen.gov

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OFAC Non-Compliance

The Laws - Criminal Trading With the Enemy Act

10 years jail, $1 million fine -corp., $100M - individuals

IEEPA – 10 years jail, $50M fine Foreign Narcotics Kingpin

30 years jail, $10 million per count Antiterrorism and Effective Death Penalty

Act

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OFAC Non-Compliance

Civil $275,000 per count IEEPA - $11,000 TWEA - $50,000 Kingpin - $1 million

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OFAC Penalties

CIVIL PENALTIES – INTERIM POLICY October 16, 2007, the International

Emergency Economic Powers Enhancement Act (IEEPA Enhancement Act) Increased the maximum civil penalty

applicable to violations of orders or regulations issued under IEEPA. The new maximum civil penalty is the greater of $250,000 or an amount that is twice the amount of the transaction

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OFAC Non-Compliance

Notice of violation Administrative demand - “602” letter Pre-penalty notice Right to respond Right to agency hearing Judicial review

Settlement Talks with OFAC Still must respond to pre-penalty notice

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OFAC Non-Compliance

Blocked Assets Can credit but cannot debit Must earn reasonable interest

Application for Specific License Annually reporting of blocked

property

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Non-Compliance with SDNTK These prohibitions affect trade transactions as

well as accounts, securities, and other assets. Corporate criminal penalties for violations of the

Foreign Narcotics Kingpin Designation Act range up to $10,000,000; individual penalties range up to $5,000,000 and 30 years in prison.

Civil penalties of up to $1,075,000 may also be imposed administratively.

The Kingpin Act blocks all property and interests in property, subject to U.S. jurisdiction, owned or controlled by significant foreign narcotics traffickers as identified by the President or others such as Secretary of the Treasury.

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Examples United Bank for Africa

FinCEN and OCC 2 Cease and Desist Orders 2 CMPs: $500M and $15MM Reduced to limited services

Union Bank of California, NA OCC, FinCEN and DOJ C&D Order and Deferred Prosecution

Agreement $10MM CMP

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Examples

Arab Bank, PLC OCC and FinCEN $24MM CMP

American Express Bank: $20MM CMP by FRB and FinCEN MSB: $5MM CMP by FRB and FinCEN AMEX: $55MM CMP by DOJ DOJ: Deferred Prosecution agreement FRB: Cease and Desist order

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Money Services Businesses Regulated by the IRS

Refers issues to FinCEN Required to register with FinCEN

Initial Renewal every 2 years

Penalties Failure to register or renew can result in both civil

and criminal penalties Violation of BSA and 31 CFR 103.41(e) CMP of up to $5M per day and possible civil

penalty by Secretary of the Treasury Criminal penalty also possible under 31 USC 5330

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Money Services Business

Sigue Corporation – January 2008 $15MM CMP for violations of BSA

Failure to maintain an effective AML Program Deferred prosecution with DOJ

Agreed to commit an additional $9.7MM to improve AML Program

Dismissal of criminal charges in 12 months if the company implements significant AML steps

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Casinos

Internal Revenue Service (IRS) Primary regulator Refers issues to FinCEN

Tonkawa Tribe of Oklahoma and Edward E. Street – March 2006 CMPs: $1MM and $1.5MM respectively Failure to have adequate AML Program Using fictitious social security numbers,

unreported $300M cash deposit22

Case Study

U.S. Trust C&D CMPs External Assessment External Directives

KPMG Regulators

AML Division Reporting Lines

Remediation Monitoring

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Questions

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