Introduction

On January 8 the District Court for the District of Minnesota denied the motion of defendant Thomas E Haider to dismiss the federal government's complaint seeking to hold Haider personally liable for violations of the Bank Secrecy Act and its implementing regulations (collectively, 'the Bank Secrecy Act') by MoneyGram International, Inc during his tenure there as chief compliance officer (CCO).(1) Among other things, the court:

  • affirmed that a compliance officer responsible for the development and oversight of an anti-money laundering (AML) programme may be held liable for the Bank Secrecy Act violations of his or her employer; and
  • reserved judgment as to whether the proposal to bar Haider from service to any US financial institution was a punitive sanction subject to the statute of limitations or a prophylactic measure that was not so limited.

Facts

The US attorney for the Southern District of New York, on behalf of the US Financial Crimes Enforcement Network (FinCEN), filed a complaint against Haider on December 18 2014, alleging that Haider was personally liable for MoneyGram's failure to implement an effective AML compliance programme and properly file suspicious activity reports (SARs), in each case during the period from 2007 to 2008, as required under the Bank Secrecy Act.(2) FinCEN is seeking a $1 million civil monetary penalty against Haider and to enjoin Haider from participating in the conduct of any US financial institution (for further details please see "FinCEN seeks penalty and injunction against former CCO"). This case is significant because it is uncommon for FinCEN to sue a money services business compliance officer personally for the AML failures of his employer.

Haider's motion to dismiss was based on five principal arguments:

  • An individual officer of a financial institution may not be held personally liable for the institution's failure to implement an effective AML policy.
  • The complaint did not sufficiently particularise the bases for the amount assessed.
  • The injunctive relief sought was time barred.
  • FinCEN's access to the grand jury materials underlying its complaint was improper.
  • The assessment and injunction violated Haider's constitutional due process rights.

Decision

Personal liability

The court held that individual compliance officers such as Haider may be held liable for the failure of a financial institution to maintain an effective AML policy. It rejected Haider's argument that liability for failure to implement an AML programme extends only to institutions under 31 USC Section 5318(h)(1) ("each financial institution shall establish [AML] programs"). The court looked to 31 USC Section 5321(a)(1), which provides that:

"A domestic financial institution or nonfinancial trade or business, and a partner, director, officer, or employee of a domestic financial institution or nonfinancial trade or business, wilfully violating this subchapter or a regulation prescribed or order issued under this subchapter (except sections 5314 and 5315 of this title or a regulation prescribed under sections 5314 and 5315) … is liable to the United States Government for a civil penalty."

The court said:

"Section 5321(a)(1)'s explicit reference to "partner[s], director[s], officer[s], and employee[s]" demonstrates Congress' intent to subject individuals to liability in connection with a violation of any provision of the Bank Secrecy Act or its regulations, excluding the specifically excepted provisions. ... Because § 5318(h) is not listed as one of those exceptions, the plain language of the statute provides that a civil penalty may be imposed on corporate officers and employees like Haider, who was responsible for designing and overseeing MoneyGram's AML program."(3)

Accordingly, the court denied Haider's motion.

Particularised assessment

The court held that the government's allegations underlying the $1 million assessment were sufficiently particularised in the complaint. It treated Haider's challenge to the assessment amount as a challenge to the sufficiency of the complaint and held that "the $1 million penalty is amply supported by the allegations underlying the SAR violations alone".(4) It stated that an exact determination of the proper amount would be "premature" at the dismissal stage.(5)

Statute of limitations

The court deferred its determination of which statute of limitations, if any, applied to the injunctive remedy sought by the government. It declined to address Haider's claim that a five-year limit barred the injunction as per 28 USC Section 2462 (five-year period for "an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise"). It reasoned that such a determination would require a factual inquiry into whether the injunction was punitive and thus within the statute or, as the government argued, prophylactic.(6)

Access to grand jury materials

The court declined to revisit the order of the Pennsylvania district court granting FinCEN access to grand jury materials. It rejected Haider's argument that FinCEN's access to grand jury materials from the government's separate investigation into MoneyGram was improper under 18 USC Section 3322. The court reasoned that the final order of the Pennsylvania district court granting access:

"specifically recognized FinCEN's need to disclose grand jury information to attorneys assigned to advise and represent FinCEN in [any] civil injunctive and penalty matter in the Southern District of New York, and to make such further disclosures as may eventually be necessary in any administrative proceeding or civil litigation commenced under [the Bank Secrecy Act]."(7)

The court declined "to vacate an order of another federal district court".(8)

Due process rights

The court held that Haider's due process rights had not been implicated because he had not yet suffered a deprivation of a liberty or property interest. It rejected Haider's argument that his due process rights under the Fifth and Fourteenth Amendments were violated by:

  • an insufficient pre-assessment process;
  • FinCEN's failure to disclose certain materials;
  • alleged bias on the part of FinCEN Director Shasky Calvary; or
  • FinCEN's alleged leak of confidential information.

The court determined that Haider had not suffered a deprivation of a property or liberty interest:

"[A]lthough Haider's property interests are ultimately at stake, the underlying administrative process did not deprive him of such interests. Rather, the assessment procedure is merely the first step in the process. The Bank Secrecy Act expressly authorizes FinCEN to assess a civil penalty and then commence a civil action to recover that penalty... Indeed, the government acknowledges that it must await judgment from this court before it may collect the assessment... Likewise, the government's requested injunction is not included in the assessment and must be imposed by the court. As a result, to date, Haider has not yet been deprived of his property interests."(9)

The court noted that Haider would have the opportunity to engage in discovery, explore the government's case and raise any available defences.(10)

After addressing or deferring each of Haider's arguments as described above, the court denied entirely Haider's motion to dismiss.(11) The parties have been ordered to appear for a pre-trial conference to discuss settlement and pre-trial matters.

For further information on this topic please contact David E Teitelbaum, Joel D Feinberg or Stephen Wallant at Sidley Austin LLP by telephone (+1 202 736 8000) or email (dteitelbaum@sidley.com, jfeinberg@sidley.com or swallant@sidley.com). The Sidley Austin website can be accessed at www.sidley.com.

Endnotes

(1) Order Denying Motion to Dismiss, US Dep't of Treasury v Haider, 15-CV-01518, 2016 WL 107940 (D Minn December 18 2014).

(2) The case was transferred to the District of Minnesota pursuant to 28 USC § 1404(a) on March 17 2015.

(3) Opinion at 6-7.

(4) Id at 7.

(5) Id at 7-8.

(6) Id at 9.

(7) Id at 2-3.

(8) Id at 10.

(9) Id at 12.

(10) Id at 12. The court reserved ruling on the level of deference to which FinCEN's fact finding was entitled:

"It may be that although the issue of Haider's liability is reviewed de novo, the amount of the assessment is reviewed for an abuse of discretion. The court declines to decide that issue at this time, nor does it determine whether application of abuse-of-discretion standard implicates Haider's right to due process" (opinion at 12).

(11) Id at 13.

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