As the government seeks to address the growing threat from ISIS and other terrorist groups, it is also increasing business oversight of financial services organizations which may to be utilized by terrorists as funding mechanisms.
Most recently, New York Governor Andrew Cuomo proposed a new anti-money laundering regulation that would require senior executives to certify the effectiveness of their anti-money laundering (AML) procedures. The new regulation would apply to all banks, trust companies, private bankers, savings banks and savings and loan associations chartered under the New York Banking Law, as well as all branches and agencies of foreign banking corporations licensed under the Banking Law to conduct banking operations in New York.
The goal of the proposed banking regulation is to help stem the flow of funding to terrorists and other criminals. “Money is the fuel that feeds the fire of international terrorism,” Gov. Cuomo said in a statement. “At a time of heightened global security concerns, it is especially vital that banks and regulators do everything they can to stop that flow of illicit funds.”
The Governor also highlighted that investigations conducted by the New York State Department of Financial Services (NYDFS) have revealed “serious shortcomings in the transaction monitoring and filtering programs of these institutions” and “that a lack of robust governance, oversight, and accountability at senior levels of these institutions has contributed to these shortcomings.”
Proposed AML Regulations
Under the proposed Transaction Monitoring and Filtering Program regulation, New York financial institutions would have a number of new compliance obligations, such as:
Maintain a Transaction Monitoring Program: Each regulated institution must maintain a manual or automated system for monitoring transactions after their execution for potential Bank Secrecy Act (BSA)/AML violations and Suspicious Activity Reporting. Among the minimum requirements for the systems, the proposed AML regulations require that they must be “subject to an on-going analysis to assess the continued relevancy of the detection scenarios, the underlying rules, threshold values, parameters, and assumptions.”
Maintain a Watch List Filtering Program: Every regulated institution must maintain a manual or automated system for the purpose of interdicting transactions, before their execution, that are prohibited by applicable sanctions, including OFAC and other sanctions lists, politically exposed persons lists, and internal watch lists. Among the minimum requirements, the systems must “be subject to on-going analysis to assess the logic and performance of the technology or tools for matching names and accounts, as well as the watch lists and the threshold settings to see if they continue to map to the risks of the institution.”
Testing/Altering Filters: The AML regulations expressly state: “No regulated institution may make changes or alterations to the Transaction Monitoring and Filtering Program to avoid or minimize filing suspicious activity reports, or because the institution does not have the resources to review the number of alerts, or to otherwise avoid complying with regulatory requirements.”
Annual Certification: Financial institutions would be required to submit annual certifications, duly executed by their chief compliance officer or functional equivalent, that confirm their systems comply with the regulation. The requirement is modeled on the federal Sarbanes-Oxley Act.
Repercussions for violating these AML regulations
Violation of the AML regulations could result in serious legal headaches for New York financial institutions and their compliance officers. If banks fail to deter prohibited transactions, they face financial penalties or could be forced to terminate their chief compliance officers. CCOs could also be subject to criminal penalties for false or inaccurate certifications.
The proposed AML regulations are, in some ways, more strict than those established under federal regulations. Accordingly, they signal that the Cuomo Administration plans to continue its tough stance on money laundering and other practices utilized by terrorist organizations. The rules are now subject to a 45-day notice and comment period.
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