American Express Fined $65 Million. Meanwhile, Bank Secrecy Act/Anti-Money Laundering STILL Needs Work
[Editor’s note: This post was originally published on August 9th, 2007. However, with so many financial services professionals Googling this post, we thought we’d make it easier on you and republish it again to the front page. And for the record, the Banking Secrecy Act STILL needs an overhaul.]
Even though the federal banking regulators updated the Bank Secrecy Act/Anti-Money Laundering requirements back in mid-July, there’s still lots of confusion to what is exactly meant by the mandate to Know Your Customer (KYC). Without clear guidelines for what is required, banks do what they can but if they end op getting fined, that’s just a cost of doing business.
As to the cost to an institution’s reputation, that’s a whole another matter entirely.
No one wants to have the head of the DEA saying something like this about their bank:
“Today an established and respected financial institution learned a valuable lesson about its legal responsibilities,” said Karen Tandy, head of the Drug Enforcement Administration.” — Reuters
And here’s a headline that Ken Chenault, American Express’ Chairman and CEO, didn’t want to wake up to today:
American Express to Pay $65M Money-Laundering Fine — CFO.com
Boy, this one’s gotta hurt:
Amex fined for money-laundering lapse — MSNBC
Headlines like this from 1998 were much more fun:
Ken Chenault: The Rise of a Star — Business Week
Back in July, American Express reported a 12% up-tick in second quarter net income. However, today at press time, while the headlines continue to appear, the stock for NYSE:AXP had fallen by 3.51 percent. The next shareholder meeting should be a lot of fun.
Here’s what the fuss is about. According the CFO story above, the DoJ, the Federal Reserve Board, and the Financial Crimes Enforcement Network (FinCEN) said about American Express Bank International (AEBI):
“AEBI failed to implement adequate internal controls, conduct adequate independent testing, and designate compliance personnel to ensure compliance with the BSA. The law requires banks to establish internal policies, employee training, and independent tests to protect themselves against money-laundering activities.
“DoJ investigators believes some of AEBI accounts were used to launder more than $55 million of drug proceeds through unregulated transferals of U.S. currency and South American currency. ‘AEBI operated in certain high-risk jurisdictions and business lines without commensurate systems and controls to detect and report money-laundering and other suspicious activity in a timely manner, as well as manage the risks of money laundering, including the potential for illicit drug trafficking-based Black Market Peso Exchange transactions,’ according to the FinCEN press release.”
In a previous post regarding the recent federal update to the BSA/AML, we pondered, “What is the legal, enforceable definition of a bank’s responsibility to ‘form a reasonable belief that it knows the true identity of its customers?’” American Express may have thought they had a reasonable belief of who their clients were in those “certain high-risk jurisdictions,” but the feds obviously felt otherwise.
In Feds Update BSA/AML Compliance Regs: Still No One Know What KYC Means, we wrote:
“It’s really scary that because of the ambiguity surrounding BSA/AML compliance, bankers are forced to play defense against their own government, instead of being on offense against money-launders, drug traffickers and terrorists.
“To Reps. Frank, Bachus and Lynchsay we say again what we said last week before this inter-agency statement came out: Congress needs to revisit AML legislation because no one really knows what Know Your Customer really means.”
If only they weren’t out for their August recess.
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