Why it matters: A tale of two compliance officers: one held personally accountable for admitted egregious compliance failures, for which he agreed to a civil penalty and injunction; the other sentenced to jail for failures that were found to be intentional and as to which he pleaded guilty and agreed to pay criminal penalties and forfeiture. Both cases are cautionary tales and indicative of the high standards to which compliance officers are currently held.
Detailed discussion: Two recent resolutions with compliance officers—one civil, the other criminal and civil—reflect the high standards to which such officers are held. We recap them here.
MoneyGram/Thomas Haider: On May 4, 2017, Joon H. Kim, the acting United States Attorney for the Southern District of New York, and Jamal El-Hindi, the acting director of the Financial Crimes Enforcement Network, jointly announced that the Treasury Department had settled its claims under the Bank Secrecy Act against Thomas E. Haider, the former chief compliance officer of MoneyGram International Inc. The DOJ and FinCEN said that, as part of the settlement, Haider "admitted, acknowledged, and accepted responsibility for" the following actions (detailed more fully in the press release):
"(1) failing to terminate specific MoneyGram outlets after being presented with information that strongly indicated the outlets were complicit in consumer fraud schemes, (2) failing to implement a policy for terminating outlets that presented a high risk of fraud, and (3) structuring MoneyGram's AML [anti-money laundering] program such that information that MoneyGram's Fraud Department had aggregated about outlets, including the number of reports of consumer fraud that particular outlets had accumulated over specific time periods, was not generally provided to the MoneyGram analysts who were responsible for filing SARs [suspicious activity reports]."
In the settlement, Haider agreed to a $250,000 civil penalty and to a three-year injunction "barring him from performing a compliance function for any money transmitter." The settlement was approved by District of Minnesota Judge David S. Doty, who, as we reported in our February 2016 newsletter under "Eye on the Courts—Recent Opinions and Rulings of Note," ruled in early proceedings in the case of U.S. Department of Treasury v. Haider that, contrary to Haider's argument, individuals can be held personally responsible for AML control failures under the Bank Secrecy Act, stating that "the plain language of the [Bank Secrecy Act] statute provides that a civil penalty may be imposed on corporate officers and employees like Haider."
The quotes from the DOJ and FinCEN in the press release reflect the high standards to which compliance officers are held by those agencies. Acting U.S. Attorney Kim said that "[c]ompliance officers perform an essential function, serving as the first line of defense in the fight against fraud and money laundering. Unfortunately, as today's settlement shows, Thomas Haider violated his obligations as MoneyGram's chief compliance officer. By failing to terminate MoneyGram outlets that presented a high risk for fraud and to take other actions clearly required of him, Haider allowed criminals to use MoneyGram to defraud innocent consumers. We are committed to working with FinCEN to enforce the requirements of the Bank Secrecy Act and to hold individuals like Haider accountable."
Added Acting Director of FinCEN Jamal El-Hindi, "FinCEN relies on compliance professionals from every corner of the financial industry. FinCEN and our law enforcement partners need their judgment and their skills to effectively fight money laundering, fraud, and terrorist financing. Compliance professionals occupy unique positions of trust in our financial system. When that trust is broken, it is important that we take action so that the reputations of thousands of talented compliance officers are not diminished by any one individual's outlying egregious actions. Holding [Haider] personally accountable strengthens the compliance profession by demonstrating that behavior like this is not tolerated within the ranks of compliance professionals."
Trident Partners/William Quigley: On March 24, 2017, the SEC announced a settlement with William Quigley, the former chief compliance officer of Long Island, New York-based Trident Partners Ltd. By way of background, Quigley had been indicted by the DOJ in May 2015 for conspiracy to commit wire fraud and money laundering conspiracy in connection with a fraudulent investment scheme in which Quigley and his co-conspirator brothers would, among other things, tell overseas investors that their funds would be invested in blue chip companies/funds such as Dell and Berkshire Hathaway, when in reality the money was transferred to accounts in the Philippines for personal use. Quigley pleaded guilty to the charges in March 2016 and was sentenced in November 2016 to six months in jail (plus three years of supervised release and one year of home confinement) and forfeiture of almost $357,000.
In its administrative order, the SEC said that Quigley served as chief compliance officer and AML officer of Trident for two periods of time between 2004 and 2014. While serving in this capacity, Quigley reportedly, among other things, "opened three brokerage accounts that he and his brothers used to misappropriate investor funds, including one account at Trident; kept Trident from learning about the account that was located there; funneled money from the accounts to his brothers; and even, on at least one occasion, gave his brother Michael Quigley an idea for a phony sales pitch to investors." Moreover, the SEC said that when Quigley "became aware of investor concerns, he falsely claimed to have no knowledge of the relevant accounts or the subject of the investor's complaints."
The SEC said that Quigley's actions were particularly egregious because he had certain obligations to Trident stemming from his role as the chief compliance officer:
"[a]s Director of Compliance, it was William Quigley's obligation to report violations and suspected violations of the securities laws, rules and regulations. This included reporting a transaction if he knew or suspected that it involved funds derived from illegal activity, or was intended or conducted to hide or disguise funds derived from illegal activity or has no business or apparent lawful purpose. Despite this obligation and his knowledge of the relevant facts, William Quigley failed to report or file required reports regarding, inter alia, wire transfers of the stolen investor funds, his improper diversion and deposits of the commission checks, his inappropriate designation of an account as a house account, or the diversion of investors' stolen funds through various accounts. … It was also William Quigley's obligation to help ensure that all the books and records of Trident were accurate and not to engage in conduct that would render them inaccurate. Despite this obligation and his responsibilities as Director of Compliance, William Quigley failed to, among other things, preserve receipts and disbursements of cash and all other debits and credits in connection with his theft of firm checks, to keep proper records regarding the beneficial owners of accounts, and to preserve originals of all communications received and sent relating to the business of Trident."
The SEC ordered Quigley to pay disgorgement of approximately $357,000 (which payment was deemed satisfied by Quigley's forfeiture payment in the parallel criminal case). Because Quigley had been sentenced to serve jail time in the parallel criminal case, the SEC waived any civil penalty but barred Quigley from all aspects of the securities business going forward.