The resurgence in anti-money laundering enforcement in the last few years reflects the overall improvement in the banking industry and recovery from the financial collapse. Federal prosecutors and regulators have renewed their interest in AML compliance lapses, particularly in the area of sanctions/OFAC violations.

FinCEN, the primary regulatory agency responsible for enforcement, has both diversified its targets and increased its enforcement efforts. For years, FinCEN focused its enforcement program on depository institutions. In the last two years, however, FinCEN has expanded its focus to include casinos, money servicing businesses, securities and precious metals.

In addition to FinCEN’s aggressive program, overall fines and penalties have grown significantly, especially against international banks which have violated OFAC and sanctions laws and regulations. The increase in fines can be expected to continue as new areas are identified for enforcement.

Beyond these two significant trends, in the coming months (and years), the scope of AML enforcement actions will extend to other substantive areas, such as SARs reporting, inadequate due diligence and KYC programs, independence of the compliance function and reviews and assessments of AML compliance programs.

Regulators are taking a much closer look at the adequacy and timeliness of SARs filings. Federal fraud prosecutions inevitably lead to questions of any banks that may be involved in transactions that facilitated a fraud scheme. In these circumstances, prosecutors and regulators are now reviewing bank SARs filings in these circumstances and asking if the bank appropriately flagged the transactions and reported them.

Perhaps one of the most significant developments will be a focus on the quality of AML compliance. Most enforcement actions have pointed to significant deficiencies, even complete failures, to implement AML compliance programs. Prosecutors and regulators have stated that they intend to examine a bank’s culture, its compliance policies and procedures, and the manner in which the program operates. This will open up aggressive enforcement to a new focus on the manner in which a bank has instituted an AML compliance program, and its commitment to continuous improvement of the program.

At the same time, there has been an increase in enforcement actions and penalties against regional and small banks for AML compliance deficiencies. While these actions do not generate significant headlines across the Wall Street Journal, the enforcement impact has been significant on regional and smaller banks and their commitment to AML compliance.

US banks that operate internationally face a new, complex set of risks as a result of increased focus on FCPA enforcement, as well as OFAC/sanctions enforcement. International banks face significant AML risks around a number of key issues, including:

  • Failure to conduct appropriate due diligence and monitoring of foreign correspondent bank account holders;
  • Inadequate monitoring of foreign correspondent bank account transactions, including remote deposit capture/international cash letter activity;
  • Deficiencies in identifying and reporting suspicious activity that occurs at a foreign branch;
  • Inadequate customer due diligence on international banking customers involved in real estate transactions.

This is not an exhaustive list of risks but highlights some of the difficulties US banks face when operating in international markets, either directly through their own foreign branches and/or through foreign correspondent banking relationships.