AML Enforcement

Federal law enforcement takes money laundering and other suspicious transactions extremely seriously. Unfortunately, this does not mean that legal scrutiny is confined to the criminal actors and organizations that launder their money; it also stretches to the banks and other financial institutions that these bad actors use to clean up their ill-gotten gains.

Bank executives and compliance officers need to understand how anti-money laundering enforcement (AML enforcement) works. In this article, Dr. Nick Oberheiden, an anti-money laundering defense lawyer for the national law firm Oberheiden P.C., summarizes the most important aspects of this field of financial crime laws.

Several Federal Agencies Enforce AML Laws

Money laundering is not investigated or prosecuted by a single federal law enforcement agency. Instead, it is considered a “cross-agency” offense that draws personnel and expertise from several different departments. Chief among these agencies, though, are the:

• Department of Justice (DOJ)
• Federal Bureau of Investigation (FBI)
• Financial Crimes Enforcement Network (FinCEN) of the United States Department of the Treasury

At the DOJ, anti-money laundering enforcement falls mainly on the shoulders of the Money Laundering and Asset Recovery Section (MLARS). This Section is composed of seven units:

1. Bank Integrity Unit
2. International Unit
3. Money Laundering and Forfeiture Unit
4. Policy Unit
5. Program Management and Training Unit
6. Program Operations Unit
7. Special Financial Investigations Unit

Over at the FBI, money laundering investigations are generally conducted by the Money Laundering, Forfeiture, and Bank Fraud Unit (MLFBU) in its Criminal Division.

These teams of investigators and prosecutors at the DOJ and FBI frequently work together with the personnel at the Financial Crimes Enforcement Network (FinCEN) to detect and prosecute money laundering, both in the United States and abroad.

There are Numerous Laws Against Money Laundering

These agencies are tasked with enforcing a wide variety of AML laws to combat money laundering, many of which are extremely wide-reaching. Several of them even regulate financial institutions across the country, effectively deputizing them as money laundering investigators and whistleblowers and punishing them for not sounding the alarm when they detect suspicious financial activity by their customers.

The fundamental AML law in the United States is the Bank Secrecy Act, or BSA, though it is the Money Laundering Control Act (18 U.S.C. § 1956 and 1957) that makes money laundering a federal offense. It was the BSA, however, that first established the regulatory framework that made financial institutions take steps to prevent, detect, and report to federal law enforcement any signs of money laundering or the misuse of the US financial system to launder criminal proceeds.

Other important federal money laundering laws that financial institutions need to be aware of are the:

• Anti-Drug Abuse Act
• Annunzio-Wylie Anti-Money Laundering Act
• Money Laundering Suppression Act
• Money Laundering and Financial Crimes Strategy Act
• Patriot Act
• Intelligence Reform & Terrorism Prevention Act
• Corporate Transparency Act

Many of these laws impose strict compliance obligations on financial institutions across the country.

An Increased Attention to Money Laundering Since the War on Terror

Money laundering has always been an issue. Criminals who acquire assets or funds through illegal means need a way to clean up or launder, their ill-gotten gains to make them appear legitimate before they can spend them in reputable markets. The Bank Secrecy Act of 1970 was one of the first attempts by Congress to rein in this activity at the federal level.

However, it was not until the terrorist attacks of September 11, 2001, that money laundering became a priority. In the aftermath of the attacks, it became clear that terrorists around the globe were using legitimate financial institutions to launder their money. The methods that they were using were surprisingly brazen, but also difficult to detect because the banks they were using did very little to gather information about their account-bearing customers.

The flurry of AML laws and regulations that were passed and promulgated at the start of the 21st century was a reaction to this problem. They imposed strict reporting requirements on financial institutions, demanding that banks take numerous steps to ascertain who their customers were, especially those who were not U.S. citizens.

As AML-defense lawyer Dr. Nick Oberheiden, founding partner of the white collar defense and corporate compliance law firm Oberheiden P.C., frequently tells his clients, “These laws and regulations are extremely broad, with many of the widest reachings among them getting passed because they focused on combatting terrorism and its sources of funding. While those were high priorities when the laws were first passed, now the regulatory schemes and rigid compliance requirements that they impose on financial institutions are seen as onerous, at times pointlessly so.”

Strict Compliance is Necessary to Avoid Enforcement Actions

Given the attention that money laundering has gotten in the past decades, financial institutions must assure ongoing compliance and comply with the law and uphold the legal obligations that these statutes and regulations impose on them. This includes implementing a host of BSA AML compliance mechanisms that satisfy:

• Your obligations to know your customer
• Suspicious Activity Report (SAR) requirements when signs of money laundering are detected
• Recordkeeping obligations regarding your customers
• Money services business (MSB) registration requirements
• Customer identification program (CID) requirements

These are just the tip of the iceberg. Moreover, the compliance mechanisms that each financial institution has to adopt have to target the specific risks that are present to each company. This means that generalized or cookie-cutter compliance strategies that work for the bank across the street will not suffice for your own.

The penalties for not taking these compliance requirements seriously are extreme. AML investigations can be civil or criminal. If criminal, owners or executives of the financial institution can be sentenced to prison, while the institution can be made to pay criminal fines. If the case is civil, financial penalties can follow. Because these are often imposed on a per-violation basis, it is not uncommon for them to run well into the millions of dollars for the conduct of a single money laundering culprit. Additionally, financial institutions that are implicated in money laundering schemes tend to suffer reputational harm that can damage their future prospects, as well.