Financial Sector Executives as Targets for Money Laundering Liability

• Date: 01 September 2015
• Published date: 01 September 2015
• DOI: http://doi.org/10.1111/ablj.12049

Financial Sector Executives as

Targets for Money Laundering

Liability

Jeffrey R. Boles

INTRODUCTION

From interest rate swaps to online banking, recent financial and techno-

logical innovations are transforming economies across the world to the

benefit of many in society. One group in particular capitalizing on the

opportunities offered by these financial and technological advances is

money launderers, those who sanitize criminal proceeds in order to con-

ceal the proceeds’ true illegal source. These individuals now have the

ability to convert their illicit proceeds by moving them virtually any-

where in the world instantaneously through wire transfers, letters of

authorization, or other means of financial transmission, frustrating

nearly all governments worldwide.

1

Congress deemed money laundering, the “cleaning” of illegally

obtained assets, as “the lifeblood of the drug trade and other criminal

organizations.”

2

Functioning as “the financial component of transna-

tional crimes,”

3

money laundering continues to plague most countries;

according to the International Monetary Fund’s estimates, criminals

Assistant Professor, Department of Legal Studies, Fox School of Business, Temple

University.

1

See Allen D. Boyer & Susan Light, Dirty Money and Bad Luck: Money Laundering in the Bro-

kerage Context,3V

A.L.&BUS.REV. 81, 85 (2008) (describing how criminals have the tech-

nological means to shift money instantaneously across the globe).

2

S. REP.NO. 99-433, at 4 (1986).

3

Lan Cao, The Transnational and Sub-National in Global Crimes,22BERKELEY J. INT’LL. 59,

67 (2004).

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C2015 The Author

American Business Law Journal V

C2015 Academy of Legal Studies in Business

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American Business Law Journal

Volume 52, Issue 3, 365–433, Fall 2015

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launder roughly USD $600 billion to $1.8 trillion in assets annually,

amounting to two to five percent of global gross domestic product.

4

The

economic and social effects potentially devastate societies, as money laun-

dering can destabilize financial institutions, alter international cash flows,

damage interest rates and currencies, facilitate high levels of crime, and

elevate government costs, among other economic and social ills.

5

In the United States, banks and other financial institutions serve as the

government’s first layer of defense against money laundering, given that

perpetrators typically use the services of financial institutions to further

their laundering activity. The money laundering process entangles the

financial services sector in complex ways, as financial institutions and their

employees may intentionally or unknowingly facilitate money laundering

transactions, yet these institutions also bear significant anti–money launder-

ing (AML) compliance responsibilities, including assisting government

agencies in detecting and investigating the crime where needed. Given the

swift growth of advanced financial products, services, and markets, along

with thorny issues arising from the recent international economic crisis,

financial institutions confront increasingly complex risk management obli-

gations in the realm of anti–money laundering compliance.

6

Garnering headlines for levying record-breaking fines, federal law

enforcement has maintained an active anti–money laundering enforce-

ment regime over the last decade in part by focusing upon financial

institutions as enablers of money laundering.

7

As the federal govern-

ment imposes heavy imprisonment terms and fines, asset forfeiture

4

Michel Camdessus, Managing Director of the International Monetary Fund, Plenary

Meeting of the Financial Action Task Force on Money Laundering, Money Laundering:

the Importance of International Countermeasures, (Feb. 10, 1998) (transcript available at

https://www.imf.org/external/np/speeches/1998/021098.htm); see also J.C. SHARMAN,THE

MONEY LAUNDRY:REGULATING CRIMINAL FINANCE IN THE GLOBAL ECONOMY 20 (2011) (discus-

sing recent estimates of the prevalence of money laundry, ranging “anywhere from the

low hundreds of billions of dollars to something over a trillion”).

5

See John McDowell & Gary Novis, The Consequences of Money Laundering and Financial

Crime,6E

CON.PERSP. 6, 6–7 (2001), available at https://www.hsdl.org/?view&did=3549.

6

See,e.g., DELOITTE,GLOBAL RISK MANAGEMENT SURVEY 1(2013),available at http://deloitte.wsj.

com/riskandcompliance/files/2013/11/global_risk_management_survey_8thed.pdf (describing

the risk management challenges financial institutions currently face).

7

See Andrew Grossman, Banks Face New U.S. Moves Against Laundering,WALL ST. J. (Jan. 9, 2014,

8:37 PM), http://online.wsj.com/news/articles/SB1000142405270230375440457931092333954

3330 (detailing increased federal enforcement actions against banks regarding AML efforts).

366 Vol. 52 / American Business Law Journal

actions, and other criminal and civil penalties for those who violate its

voluminous list of AML laws and accompanying regulations, financial

institutions face potentially crippling criminal and civil penalties for

facilitating money laundering or failing to monitor their operations

properly for potential money laundering activity.

8

Furthermore, the reg-

ulatory requirements these institutions must follow to assist govern-

ments in detecting money laundering activity seem ever growing.

9

The

institutions control for these risks largely by sustaining sophisticated

AML programs that typically include appropriate internal policies, con-

trols, and procedures; the presence of a compliance team focused upon

money laundering prevention within the institution; and ongoing

employee training programs.

10

Irritated with AML noncompliant banks that apparently receive “slap

on the wrist” punishments with no jail time or fines for bank personnel,

some congressional leaders and federal agencies recently turned their

attention to the culpability of senior executives and other employees

within financial institutions who fail to address adequately their institu-

tions’ AML compliance deficiencies. A bill introduced in Congress, the

Holding Individuals Accountable and Deterring Money Laundering Act,

and an ancillary set of federal agency initiatives aim to penalize individ-

uals within financial institutions for their lapses in oversight and man-

agement when their institutions fail to comply with AML

responsibilities.

11

Compliance officers form the main targets for these

personal liability initiatives, as the officers typically supervise the opera-

tions of their institutions’ AML compliance programs.

This article explores the merits of government initiatives that assign

personal liability for money laundering violations committed by institu-

tions in the financial sector. In it I argue that the current set of personal

liability initiatives proposed in Congress and endorsed by federal agen-

cies contain problematic features that conflict with corporate governance

principles, raise troubling ethical issues, and could bring harmful effects

8

See infra Part II.C (describing money laundering penalties).

9

See infra Part I.B.1 (outlining key AML regulatory requirements that affect financial

institutions).

10

See 31 U.S.C. § 5318(h)(1) (2012) (listing AML compliance requirements for financial

institutions).

11

H.R. 3317, 113th Cong. (2013).

2015 / Money Laundering Liability 367