Enforcement Actions and Penalties Wyn Clark U.S. Treasury 1

Overview Civil Penalties Criminal Penalties Enforcement Actions OFAC Penalties Examples Money Service Businesses Casinos Case Study 2

Civil Penalties CMPs for banks, employees, partners, directors or officers for BSA/AML related violations or findings 31 CFR – Reporting and Recordkeeping Up to $100M or amount involved 12 USC 1955 – Financial Recordkeeping Up to $10M 31 USC 5321 Records and Reports on Monetary instrument Transactions $25M or amount of transaction up to $100M 3

Criminal Penalties 31 CFR 103 – Reporting and Recordkeeping Up to $250M fine Up to 5 years in prison Up to $500M and 10 years if pattern of criminal activity 12 USC 1956 – Financial recordkeeping Up to $1M fine Up to 1 year in prison Up to $10M and 5 years if pattern of criminal activity 31 USC 5322 Records and Reports on monetary instrument transactions Person - Up to $500M and 10 years Institution – Up to $1MM 4

Communicating Supervisory Concerns Verbal Comments Informal with management during exam Formal with the Board during or after exam Supervisory letter to management Finding in Report of Exam or other communication to the Board Deficiencies or weakness Violation of regulation(s) Enforcement Actions 5

Informal Enforcement Actions Not serious, but need Board written commitment Not disclosed to the public Commitment letters, memoranda of understanding Formal Enforcement Actions More serious issues, some enforceable in Federal courts Disclosed to the Public Failure to comply can result in CMPs 6

Enforcement Actions Banks Cease & Desist Orders (C&D) Civil Money Penalty Orders (BCMP) Formal Agreements (FA) Prompt Corrective Action Directives (PCAD) Safety & Soundness Orders (SASO) Securities Enforcement Actions (SEB) 7

Enforcement Actions Institution Affiliated Parties (IAPs) 1829 "Removals" (1829) Cease & Desist Orders against Individuals (PC&D) CMP Orders against Individuals (CMP) Formal Agreements (FA) Removal/Prohibition Orders (REM) Restitution Orders (REST) Securities Enforcement Actions against Individuals (SEI) 8

Joint Interagency Statement Issued by the primary federal bank regulators (FRB, FDIC, OCC, OTS,NCUA) Provides consistent BSA compliance regulations regarding examinations and BSA compliance requirements Provides consistent policy under which a Cease and Desist order will be issued Failure to establish and maintain a BSA compliance program Failure to correct problem previously reported to the bank 9

Who can impose enforcement actions and/or CMPs? FinCEN Authority under the BSA Federal Bank Regulators Authority under 12 USC 1818(i)(2) 12 USC 1786(k)(2) Department of Justice State Banking Regulators OFAC DOJ 10

FinCEN 44 cases since 1999 on FinCEN website of enforcement actions Banks, Casinos, stores, MSBs 11

OFAC Non-Compliance The Laws - Criminal Trading With the Enemy Act 10 years jail, $1 million fine -corp., $100M - individuals IEEPA – 10 years jail, $50M fine Foreign Narcotics Kingpin 30 years jail, $10 million per count Antiterrorism and Effective Death Penalty Act 12

OFAC Non-Compliance Civil $275,000 per count IEEPA - $11,000 TWEA - $50,000 Kingpin - $1 million 13

OFAC Penalties CIVIL PENALTIES – INTERIM POLICY October 16, 2007, the International Emergency Economic Powers Enhancement Act (IEEPA Enhancement Act) Increased the maximum civil penalty applicable to violations of orders or regulations issued under IEEPA. The new maximum civil penalty is the greater of $250,000 or an amount that is twice the amount of the transaction 14

OFAC Non-Compliance Notice of violation Administrative demand - “602” letter Pre-penalty notice Right to respond Right to agency hearing Judicial review Settlement Talks with OFAC Still must respond to pre-penalty notice 15

OFAC Non-Compliance Blocked Assets Can credit but cannot debit Must earn reasonable interest Application for Specific License Annually reporting of blocked property 16

Non-Compliance with SDNTK These prohibitions affect trade transactions as well as accounts, securities, and other assets. Corporate criminal penalties for violations of the Foreign Narcotics Kingpin Designation Act range up to $10,000,000; individual penalties range up to $5,000,000 and 30 years in prison. Civil penalties of up to $1,075,000 may also be imposed administratively. The Kingpin Act blocks all property and interests in property, subject to U.S. jurisdiction, owned or controlled by significant foreign narcotics traffickers as identified by the President or others such as Secretary of the Treasury. 17

Examples United Bank for Africa FinCEN and OCC 2 Cease and Desist Orders 2 CMPs: $500M and $15MM Reduced to limited services Union Bank of California, NA OCC, FinCEN and DOJ C&D Order and Deferred Prosecution Agreement $10MM CMP 18

Examples Arab Bank, PLC OCC and FinCEN $24MM CMP American Express Bank: $20MM CMP by FRB and FinCEN MSB: $5MM CMP by FRB and FinCEN AMEX: $55MM CMP by DOJ DOJ: Deferred Prosecution agreement FRB: Cease and Desist order 19

Money Services Businesses Regulated by the IRS Refers issues to FinCEN Required to register with FinCEN Initial Renewal every 2 years Penalties Failure to register or renew can result in both civil and criminal penalties Violation of BSA and 31 CFR (e) CMP of up to $5M per day and possible civil penalty by Secretary of the Treasury Criminal penalty also possible under 31 USC

Money Services Business Sigue Corporation – January 2008 $15MM CMP for violations of BSA Failure to maintain an effective AML Program Deferred prosecution with DOJ Agreed to commit an additional $9.7MM to improve AML Program Dismissal of criminal charges in 12 months if the company implements significant AML steps 21

Casinos Internal Revenue Service (IRS) Primary regulator Refers issues to FinCEN Tonkawa Tribe of Oklahoma and Edward E. Street – March 2006 CMPs: $1MM and $1.5MM respectively Failure to have adequate AML Program Using fictitious social security numbers, unreported $300M cash deposit 22

Case Study U.S. Trust C&D CMPs External Assessment External Directives KPMG Regulators AML Division Reporting Lines Remediation Monitoring 23

Questions 24