Recent Developments in BSA/AML: FDIC Weighs In on “De-Risking;” FinCEN and SEC Bring Actions Against Oppenheimer & Co. for BSA/AML Violations

Sullivan & Cromwell LLP - February 2, 2015
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January ended on a very active note in the area of Bank Secrecy Act (“BSA”)/anti-money laundering (“AML”) compliance, with the Federal Deposit Insurance Corporation (the “FDIC”), the Securities and Exchange Commission (“SEC”), and the Financial Crimes Enforcement Network (“FinCEN”) all contributing to the ongoing dialogues regarding “de-risking” and heightened regulatory expectations.
 
On January 28, 2015, the FDIC released a statement to financial institutions—consistent with, but seemingly more expansive than, earlier statements made by federal banking regulators—encouraging institutions to take a risk-based approach in assessing all individual customer relationships rather than “de-risking,” or declining to provide services to entire categories of customers.  The statement advised that institutions may contact the FDIC’s Ombudsman or Office of Inspector General (the “OIG”) if examiners fail to follow these principles.  The same day, the media reported that the FDIC issued a policy that reinforces the statement by requiring examiners to formally document and report instances in which FDIC personnel recommend or require banks to terminate deposit account relationships.  Assuming the press reports are accurate, the FDIC’s statement, when combined with the policy, seems to be a step in the right direction towards aligning agency policy with examiner practice.

With respect to heightened regulatory expectations, on January 27, 2015, FinCEN and the SEC settled parallel enforcement actions for a total of $20 million in civil penalties against Oppenheimer & Co. Inc. (“Oppenheimer”), a full-service broker-dealer, for violations of the BSA and federal securities laws.  The two actions are the latest in a series of actions against Oppenheimer for AML program shortcomings, the most recent being the Financial Industry Regulatory Authority’s (“FINRA”) August 2013 action against the company for substantially similar conduct.  In addition, the SEC’s action, particularly when coupled with earlier actions by FINRA against Oppenheimer and Brown Brothers Harriman for AML program deficiencies in connection with penny stock transactions, demonstrates that securities regulators are viewing penny stock surveillance as a matter of significant AML concern.