US Regulators Look to Punish Bankers for Money Laundering

Thursday, 07 Mar 2013 06:29 PM

 

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Bank executives who violate anti-money laundering laws may soon face harsher punishment in the United States as regulators consider ways to step up the fight against illicit money flows.

New rules are being weighed that will hold individuals specifically liable, and older rules - rarely used to take action against executives - will also be explored, top officials from the Office of the Comptroller of Currency and the Treasury Department's illicit finance unit told lawmakers on Thursday.

Regulators and law enforcement authorities have recently settled with top banks, including HSBC Holdings Plc, which in December agreed to pay a record $1.9 billion to resolve charges it laundered a river of drug money from Mexico. It entered into a deferred prosecution agreement, and no bank employees were charged in connection with the case.

Senators on Thursday focused on that discrepancy and attacked regulators for what they described as lax enforcement.

"If you're caught with an ounce of cocaine, the chances are good you're going to jail. ... But evidently, if you launder nearly a billion dollars for drug cartels and violate international sanctions, your company pays a fine and you go home and sleep in your own bed at night... I think that's fundamentally wrong," said Elizabeth Warren, freshman Democratic senator from Massachusetts.

Comptroller of the Currency Thomas Curry and the Treasury Department's David Cohen, who is undersecretary for terrorism and financial intelligence, told the Senate Banking Committee they were taking steps to address the issue.

"One area we've not been sufficiently aggressive in is going after individuals ... who are responsible for the conduct that has resulted in fines and penalties against the institution itself," Cohen said.

FinCEN, a unit within the Treasury Department that focuses on money-laundering issues, can obtain injunctions and civil penalties against individuals that violate the law. But it has employed these tools only occasionally in the past, usually against individuals affiliated with smaller money transmitters.

"In the future FinCEN will look for more opportunities to impose these types of remedies in appropriate cases," Cohen said in his testimony to the committee.

The OCC is also exploring regulatory changes to improve its ability to bar bank officers, directors, and employees that violate the Bank Secrecy Act, or BSA, Curry said.

 

"TOO BIG TO JAIL"

Lawmakers have stepped up pressure on regulators and the Justice Department in recent months over their resolutions involving bank misconduct, questioning whether some institutions had become too big to prosecute.

On Wednesday, Attorney General Eric Holder told another Senate panel that it was difficult to prosecute some large institutions because it would "have a negative impact on the national economy, perhaps even the world economy."

On Thursday, regulators appeared defensive and largely shifted the blame to the Justice Department over decisions not to take more aggressive action against HSBC.

"We do civil enforcement, and in the case of HSBC, we gave the statutory maximum in terms of money penalties. We did what we had the legal authority to do," said Federal Reserve Board Governor Jerome Powell. "The Justice Department has total authority ... to decide who gets prosecuted for what."

When Warren repeatedly asked whether regulators could identify a line beyond which a bank should face losing a license, Cohen struggled to respond before saying: "The actions that we took in the HSBC case we thought were appropriate in that instance."

Senator Joe Manchin of West Virginia said the Department of Justice should testify about why they haven't prosecuted individuals. The committee did not invite a DOJ representative to testify at the Thursday hearing, according to a committee aide.

In a statement, the Justice Department said it is "committed to aggressively investigating allegations of wrongdoing at financial institutions and, along with our law enforcement partners, holding individuals and corporations responsible for their conduct."

At the hearing, Senator Tim Johnson, a South Dakota Democrat who chairs the Senate committee, urged regulators to consider the "full range of remedies" in similar cases, including injunctions, industry bars, and suspending specific business lines in response to violations.

© 2014 Thomson/Reuters. All rights reserved.

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