Another BSA Victim

More evidence of the unrelenting brain damage being inflicted upon commercial banks by federal bank regulators over Bank Secrecy Act/Anti-Money Laundering Act compliance failures surfaced last week in press reports that the California national bank subsidiary of Dutch commercial banking behemoth Rabobank Group was forced to sign a supervisory agreement with the OCC to improve its processes and training regarding its security and anti-money laundering activities.

In a conversation with the CEO of a BSA compliance consulting firm last week, I was told that the OCC was the toughest of the federal regulatory bunch on BSA and anti-money laundering compliance. I'd agree, but I don't want to goad any other regulatory agency into getting into a "size comparison" contest, so I'll simply concede that all the federal regulators are equally concerned with BSA and money laundering compliance and all are likely to be equally tough on banks that don't comply.

"Regulators aren't allowing any leeway on BSA," bank consultant Dave Alford said. "It's very strict."

There you go. All you regulators are strict constructionists.

At least in Rabobank's case, while the failures were serious enough to warrant a formal written agreement, they were not serious enough to merit a fine.

"There was no suggestion that there was a failure to file (required documents). The OCC wanted to see better organization and training for compliance," said John Hancock, general counsel with Rabobank N.A., the California subsidiary of Dutch banking giant Rabobank Group.

[...]

The agreement requires better record-keeping, better training and more complete processes for the bank and its employees, he said. Some banks have been hit with big fines for gross BSA failures. Rabobank was not fined, Hancock said.

"The evolution of bank regulations tends to move at a glacial pace. This is a field that is moving quickly," he said.

It's also a field that requires a lot of judgment calls by bank employees, calls that are subject to much Monday morning quarterbacking by auditors and examiners. I would expect that being a BSA Officer would be as much fun these days as being a jihadist caught in an open field in Iraq under a full moon with an Apache attack helicopter hovering over your right shoulder. I guess that's why every job posting I've seen in the last six or seven months for a bank BSA Officer carries with it a salary range that is just below that of a first year associate at a Wall Street law firm. Before the annual bonus that big firm baby lawyers get, that is. Still, it's a lucrative position, yet one that would seem to be thankless at any price.

A perverse sidelight of all of this concern about banks being required to catch the bad guys and to play the role of Junior G-Man in banker's clothing was recently e-mailed to me by a regular reader. While banks need to cross their "Ts" and dot their "Is" where suspicious activities are concerned, if they're defrauded by a borrower on a residential loan, they can wait for the next snowball fight in Hell to break out before the FBI will go after the crooks who caused the bank to suffer a loss. At least, that's the report from at least one source.

In 2006, the FBI studied three million mortgage loans and found that 30 to 70 percent of early payment defaults can be linked to misrepresentations in mortgage loan applications.

[...]

Although lying on a mortgage application is a federal crime, borrowers who committed mortgage fraud are low on the FBI's list of priorities. Joseph Schadler, an FBI spokesman, said investigators will be focusing on organized property flipping rings and bogus foreclosure rescue schemes instead of lying buyers.

'We're going to pick the ones that are the most egregious and have the greatest impact on the economy,' Schadler said. 'Fraud for property is less impactful on the economy than the speculative fraud where people are trying to flip homes for profit.'

That assertion seems debatable, and it sends the blogger off the deep end of the pool, as well it should.

Banks need to beef up their processes, procedures, technology, personnel, and training to smoke out and report suspicious activity (and, as we've previously observed, maybe do much more), all at considerable expense, and to make certain that they don't fail in any respect to comply with the law. On the other hand, the FBI's going to pursue only the biggest and splashiest cases that are uncovered.

As that guy in the Chevy commercial exclaims about the hemmie under the hood: "Sweet!"

Comments

[Lisa]

I don't remember how I found your blog, but I'm glad I did. It's been very informative.

[DonD]

When I read a comment like the one above, I keep waiting for the addition of "but why are such a(n) [insert expletive here]." Don't you?

[Anonymous]

You probably don't want to post this comment to your blog, but you might want to take a look at this guidance document from OFAC.

http://www.treas.gov/offices/enforcement/ofac/programs/common/licensing_guidance.pdf

I'll let you draw your own conclusions, but the impact for businesses, financial institutions, and even the U.S. economy may be beyond estimation if OFAC really means (and enforces) what it says in this guidance.

You might want to key in on the third paragraph and part where OFAC says "property of such an entity are blocked regardless of whether the entity itself is listed..." And then think about what hoops a business or financial institution must go through to satisfy themselves that an entity is not affiliated with an entity on the SDN list.

I'm not even sure where to begin assessing the risk to determine when it might be prudent to conduct beneficial ownership due diligence, but here are some things to think about for run-of-the-mill financial transactions:

1. How long will it take to conduct new account opening beneficial ownership due diligence and how much should the institution rely upon the statements of the person opening the account?

2. What happens to wire transfer activity if banks have to conduct beneficial ownership due diligence not only for the originator, but now for the transaction beneficiary as well, for both international and domestic wires? (Transactions that used to take a few minutes or a few hours, may now take days or even weeks to complete. Again, how much reliance can a bank place on statements and assurances from the originator of a transaction?)

3. Similar to wire transfers, how does the guidance impact ACH activity?

4. What about debit card purchases? Blocking online gambling transactions may be a walk in the park compared to this.

Surely, somebody at OFAC has made a mistake by issuing this guidance.

Signed: A Worried Bank Compliance Officer

[Kevin]

Lisa, it's best to forget how you made it here. That way, you can always claim that you lacked the requisite intent to deliberately read this snark.

Don, if by "expletive" you mean the terms "Cosmic Muffin" or "Hairy Thunderer," then yes, I do keep waiting for the accolades to commence.

Anon, why wouldn't I post your comment? It's better than 99.9% of the garbage I post on this blog.

[Lisa]

You guys are funny. I really do like your blog.