ABA Banking Journal - September/October 2015 - (Page 46)
>>> LEGAL BRIEFS
wHO sHOULD HAVE
pErsONAL LIABILITy FOr
bY DAWN cAUseY
ALTHOUgH IT Is ImpOssIBLE to find a chief compliance officer at the top of any
company organizational chart, recent cases have concluded that the buck
stops with the CCO. And that has attracted every compliance officer's attention.
Using an untested theory of
liability, federal regulators and
private regulatory organizations are
seeking to hold CCOs personally
liable for banks and companies
failing to comply with anti-money
laundering and other requirements.
The only case being actively
litigated is the one with the biggest
penalty. U.S. Dept. of Treasury v.
Haider involves the former CCO
for MoneyGram. FinCEN alleged
and MoneyGram admitted to
aiding and abetting wire fraud
and willfully failing to implement
an effective AML program. The
scams included a number of
schemes that induced consumers
to send money to the fraudsters.
Federal and state agencies alleged
that the company should have
known it was facilitating fraud. The
case against Thomas Haider alleged
his responsibility for programmatic
violations and failure to report
suspicious activity. A $1 million
penalty was assessed against
Haider personally and he was
banned from further employment
in the industry. Among the issues
cited was failure to: implement
a discipline policy; terminate
known high-risk agents/outlets; file
timely suspicious activity reports;
conduct effective audits of agents
or outlets; and conduct adequate
ABA BANKING JOURNAL | sEpTEmBEr/OcTOBEr 2015
due diligence for the company.
Haider moved to dismiss the
allegations, and oral arguments will
be held in September. His motion
argues that one of the two statutes
cited against him in the Bank Secrecy
Act never contemplated individual
liability, and the government's
failure to track the money penalties
to the statutes cited dooms the
entire penalty assessment.
Another case is FINRA v. Harold A.
Crawford, the former global AML/
CCO of Brown Brothers Harriman.
That case, involving penny stock
fraud, resulted in Crawford being
assessed a personal penalty of
$25,000 while Brown Brothers paid
$8 million. Crawford's failing? He was
held personally liable because he
had written a memorandum to his
superiors detailing the issues with the
penny stocks, but failed to take any
action. FINRA stated that putting the
company on notice was not sufficient
to eliminate his personal liability.
The SEC weighed in with its own
order against the CCO of SFX
Financial Advisory Management
Enterprises, Inc., in June of this year.
In that case the former president
of SFX misappropriated $670,000
from three client accounts. The
company agreed to a penalty of
$150,000; the CCO paid a $25,000
personal penalty. Even though SFX
conducted an inquiry and fired
the president, both the company
and the CCO were held liable for
violating the Investment Advisors
Act because SFX failed to adopt
and implement written policies and
procedures designed to prevent the
president's fraudulent acts and failed
to reasonably supervise the president
and the CCO did not conduct the
annual review of its compliance
program in 2011, the year during
which the fraud was discovered.
While it is appropriate for regulators to
site areas where a bank's compliance
operation falls short, including an
individual officer, holding CCOs
personally and legally liable for a
company's failures is draconian
and potentially counterproductive.
More cases like these will
only make hiring and retaining
qualified CCOs more challenging,
which in turn makes compliance
operations more vulnerable.
Banking may in be the business
of risk management, but personal
liability for CCOs puts them in a
serious predicament of assessing
business risk appetites against their
own. Compliance is challenging
enough without personal liability. Is
the CCO the correct target?
DAWN cAUseY is general
counsel at ABA.
Table of Contents for the Digital Edition of ABA Banking Journal - September/October 2015
POISED AND PROACTIVE ON THE FARM
MEETING CUSTOMERS WHERE THEY ARE
INVESTING IN STRONG RURAL COMMUNITIES
ABA COMPLIANCE CENTER INBOX
BANKS IN INSURANCE
REAL ESTATE LENDING
FROM THE STATES
INNOVATIONS IN SOCIAL RESPONSIBILITY
INDEX OF ADVERTISERS
ABA Banking Journal - September/October 2015
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