Banking Law

It's not as if we didn't see this coming.

According to yesterday's American Banker (paid subscription required), the US Justice Department is about to hit money services business Sigue Corp "with a record money laundering fine "that experts said signals more aggressive enforcement of the Bank Secrecy Act."

To date the Justice Department has fined companies for failing to have an effective anti-laundering program, but according to a copy of the settlement obtained by American Banker, the government went further by accusing Sigue of failing to prevent laundering or investigate suspicious activity for which it filed reports.

"They're reinterpreting, redefining what their [BSA] expectations are," said Robert Pargac, Sigue's general counsel. "Under the Justice order, I think they are saying you just don't have to have your AML compliance program, detect suspect activity, and report it to law enforcement, but it goes a step further, and they are requiring institutions to prevent money laundering."

Outsiders, including Peter Djinis, the former executive assistant director for regulatory policy at the Financial Crimes Enforcement Network, backed up Mr. Pargac's interpretation.

"I don't think any institution could meet the standards that are now being imposed by this agreement," Mr. Djinis, now a lawyer in Sarasota, Fla., said in an interview Friday. "Aggressiveness is fine as long as it's fair. This is changing the rules after the activity is covered and I think that is unfair."

The Justice Department "went too far," he said. Under this standard, even a financial institution that filed a suspicious activity report could be held criminally liable "if they have not done an effective job of uncovering the entire money laundering operation."

Ralph Sharpe, a partner at the Washington law firm Venable LLP and a former enforcement official at the Office of Comptroller of the Currency, agreed with that assessment.

"It has implications not just for MSBs, but also banks and anyone else subject to the SAR filing requirements or BSA requirements, and that is it is not enough to file a SAR or a good SAR, but you've got to take the next step to see if there is something there ? some pattern, some abuse ? and you have to act on it," he said.

Here's the rub: the company detected the potential money laundering, filed SARs, yet still was fined.

Sigue had an anti-laundering program in place and filed suspicious activity reports on some of the transactions. But in the settlement order, the Justice Department held it liable for not adequately investigating the suspicious activity and for not preventing the broader pattern of laundering.

In all, Sigue identified more than $47 million of structured transactions, but the order said it "failed to take action to prevent from reoccurring."

"Failed to take action to prevent from recurring"? It's bad enough that banks feed SARs into the black hole that is FinCen, where they're eaten by FinCen's pet goat. Now, banks not only have to do law enforcement's job of detecting crimes, they have to prevent them, too. They have to stop the criminals in their tracks, or they'll be hit with a record fine and a deferred criminal prosecution, if they're lucky. If they're not lucky, then what? They get "rendered" to a foreign intelligence service? Waterboarded? Forced to go on a drug free, alcohol free, sex free date with Lindsay Lohan?

We've been yapping like a wee bitty Pekingese for some time now about the ridiculously onerous BSA requirements that are being placed upon banks. Of course, we felt like the canary in the coal mine. Now, the big dogs, ex-FinCen officials and ex-federal banking regulators, are starting to bark loudly. Do you think the US government and federal banking regulators will listen, or just grab a baseball bat and start beating all of us like a pack of mangy curs? Neither. They'll ignore us, as they always do.

Here's an idea for bankers: no matter what your political persuasion, start contributing to a Democratic Party war chest near you and hope that a change in administration and a clean sweep of the Justice Department and the federal banking agencies, at the top levels at least, imposes a modicum of reality on the powers that be. I thought that I'd seen the peak of jack-booted thuggery in the late 1980s and early 1990s, during two previous Republican administrations that I helped vote into power, but they had nothing on the latest circus clowns in D.C. The old boys at least extended you the courtesy of listening to you before they ignored you and proceeded to stone your clients to death like enraged Imams after a teenage girl who left her eyelids uncovered.  The current crop of bank cops doesn't even pretend to listen to voices of reason, even to their ex-cohorts. The only thing a bully understands is power. In this case, it's got to be the power of the ballot box.

Of course, there's always the risk that faces any special interest group when dealing with the boys and girls in D.C.: too many politicians turn out not to be "good politicians," i.e., those who, once they are bought, "stay bought."

Thus, banks may be forced to continue to attempt to do the impossible. And fail, naturally.

So, how are those money service businesses looking to all you commercial banks out there?