On December 18 2014 the US attorney for the Southern District of New York filed on behalf of the US Financial Crimes Enforcement Network (FinCEN) a 146-paragraph civil complaint in the US District Court for the Southern District of New York against Thomas Haider, former chief compliance officer for MoneyGram International Inc.(1) The complaint seeks monetary and injunctive relief from Haider in his personal capacity, alleging a wilful failure to:

  • implement an effective anti-money laundering (AML) compliance programme; and
  • properly file suspicious activity reports (SARs).

Each omission is an alleged failure to act under the Bank Secrecy Act and the implementing regulations. The complaint alleges that from November 15 2007 to May 23 2008 (the assessment period) and at other relevant times, Haider:

  • supervised the MoneyGram AML compliance department and fraud department;
  • was responsible for ensuring Bank Secrecy Act compliance;
  • was a member of MoneyGram's senior leadership team, an executive management group whose members reported directly to MoneyGram's chief executive officer;
  • turned a 'blind eye' to fraudulent activities that were repeatedly called to his attention, thereby enabling them; and
  • failed to file SARs as required under the Bank Secrecy Act.

The underlying fraudulent activity occurred at various MoneyGram outlets located primarily in Canada, New York and Texas during the assessment period. Broadly, Haider is alleged to have failed to implement AML controls, discipline or terminate agents, conduct AML audits effectively or file SARs properly, and to have ignored numerous 'red flags' or warning signs of fraud.

FinCEN assessed a $1 million civil money penalty against Haider on December 18 2014 for his "wilful failure to ensure that MoneyGram (i) implemented and maintained an effective AML program, and (ii) filed timely SARs". In the complaint, the United States seeks to reduce the civil money penalty to a judgment of personal liability against Haider, together with an injunction barring him:

"from participating, directly or indirectly, in the conduct of the affairs of any 'financial institution' (as that term is used in the [Bank Secrecy Act]...) that is located in the United States or conducts business within the United States, for a term of years – to be determined at trial – sufficient to prevent future harm to the public."

The complaint is significant because it is highly uncommon, and possibly unprecedented, for FinCEN to hold a compliance officer personally responsible for the AML failures of an employer.

Legal basis of complaint

MoneyGram provides money transmission services to the public and is a 'money services business' (MSB), a subset of the broader term 'financial institution' as defined by the Bank Secrecy Act. Under the act, among other requirements, an MSB must:

  • implement an effective AML programme that is reasonably designed to prevent the MSB from being used to facilitate money laundering and the financing of terrorist activities; and
  • report suspicious transactions relevant to a possible violation of law or regulation.

As the complaint explains, an MSB that does business through agents must – in connection with its AML programme – conduct reasonable due diligence and risk monitoring of its agents, to help ensure that they are not complicit in illegal activity involving the MSB's products and services and to allow the MSB to identify and – where appropriate – report any suspicious activity. MSBs should also establish procedures for dealing with agents that present unreasonable risks of money laundering or the financing of terrorism.

FinCEN is authorised under the Bank Secrecy Act to impose civil money penalties on financial institutions and their partners, directors, officers and employees for wilful violations of the act. The amount of a civil money penalty is capped at the greater of $25,000 or the amount involved in the transaction (if any), not exceeding $100,000. Violations of the requirement to maintain appropriate procedures to ensure compliance with the Bank Secrecy Act or to guard against money laundering constitute a "separate violation... for each day the violation continues and at each office, branch, or place of business at which a violation occurs or continues".(2)

In the case in question, the civil money penalty was calculated based on the aforementioned assessment period. The complaint also seeks injunctive relief based on Section 5320 of the Bank Secrecy Act:

"When the Secretary of the Treasury believes a person has violated, is violating, or will violate [the Bank Secrecy Act] or order issued under [the Bank Secrecy Act], the Secretary may bring a civil action in the appropriate district court of the United States... to enjoin the violation or to enforce compliance with the [Bank Secrecy Act] or order."(3)

Alleged lack of effective AML programme

The complaint alleges that Haider failed to implement a policy for disciplining or terminating agents or outlets, despite advice from external counsel and the MoneyGram director of fraud. Haider is alleged to have learned from MoneyGram personnel of fraudulent activity by MoneyGram agents or outlets, or the suspicion thereof, and continued to grant the agents or outlets permission to "use MoneyGram's money transfer system to facilitate their fraudulent schemes".

The United States claims that Haider knew or should have known that certain agents posed at least an unreasonable risk of fraud. The complaint relies in large part on a spreadsheet that Haider is said to have received by email in April 2007. The April 2007 spreadsheet listed "approximately 30 outlets that the Fraud Department had previously recommended for termination, plus additional outlets that it was also recommending be terminated or at least sent warning letters and then very closely monitored", covering the six-month period from September 2006 to February 2007. It noted a number of Canadian agents and outlets participating in various frauds.

These Canadian agents and outlets, their underlying frauds and Haider's response underlie much of the complaint. They, and others from the April 2007 spreadsheet, were allegedly characterised by MoneyGram's director of AML compliance as "egregious and beyond anyone's ability to doubt that the agent had knowledge and involvement". According to the complaint, the entities on the April 2007 Spreadsheet:

"(i) had an excessively high number of received money transfers reported as fraudulent; (ii) had an excessively high percentage of their total number of received money transfers reported as fraudulent; (iii) had an excessively high percentage of their received money transfers originate from the United States; and/or (iv) received more money transfers than they sent."

The complaint states that "developed countries like the United States and Canada typically send (i) money transfers to less-developed countries, and (ii) more money transfers than they receive". The complaint alleges that Haider did not terminate the agents and outlets appearing on the April 2007 spreadsheet, despite receiving recommendations that they be closed.

The complaint also alleges that, under Haider's control, SAR analysts did not have access to sufficient information to file SARs – that is, they did not have access to the fraud department's consumer fraud reports. The alleged underlying cause is that under Haider's watch, MoneyGram maintained each relevant department in a separate 'silo'. Moreover, Haider allegedly failed to ensure that MoneyGram conducted proper 'risk-based' audits of prospective and existing agents and outlets, despite notice of high-risk characteristics. Also, due to Haider's alleged inaction, MoneyGram reportedly lacked a coherent diligence process and ignored warning signs when it came to authorising new agents or expanding into new outlets.

Haider continues to dispute FinCEN's allegations.

David E Teitelbaum or Joel D Feinberg

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.