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From Banking and Finance Law Daily, March 18, 2014

Senior management should be held accountable for BSA violations, says Curry

By Lisa M. Goolik, J.D.

Comptroller of the Currency Timothy J. Curry is blaming Bank Secrecy Act infractions on financial institutions’ senior management and boards of directors. Speaking before the Association of Certified Anti-Money Laundering Specialists, Curry stated that the issues underlying BSA infractions “can almost always be traced back to decisions and actions of the institution’s Board and senior management.”

In his remarks, Curry stated that, while the vast majority of our institutions are doing a good job with BSA compliance, too many BSA programs don’t meet the requirements of the law. Curry identified four areas that require the attention of senior management: the culture of compliance within an organization; the resources committed to BSA compliance; the strength of the organization’s information technology and monitoring process; and the quality of risk management.

Culture of compliance. According to Curry, establishing an effective compliance culture starts at the top, and “it is critical that the board and senior management set the right tone and that their message permeate the entire organization.” The board and senior management must not only send the right message, but they need to “walk the talk.” The bank’s system of compensation and incentives must align with good compliance practices, said Curry.

Adequate resources. In addition, senior management must provide increased resources, increase the authority and stature of the BSA Officer within the organization, and ensure proper incentives are incorporated throughout the organization, including the business lines, said Curry. Curry applauded the efforts of some of the largest banks that are increasing spending by “significant amounts” and are adding staff. “We are still validating results, but on their face, some of the commitments and improvements we are seeing are truly impressive,” Curry stated.

Risk management. Curry also discussed the importance of basic risk management. According to Curry, no matter what business a financial institution is in, the institution must exercise sound judgment, conduct due diligence, and evaluate customers individually.

However, Curry cautioned, banks shouldn’t feel that they cannot serve a customer just because they fall into a high-risk category. “Higher-risk categories of customers call for stronger risk management and controls, not a strategy of total avoidance,” said Curry. “Obviously, if the risk posed by a business or an individual is too great to be managed successfully, then you have to turn that customer away. But you should only make those decisions after appropriate due diligence.”

Accountability. Curry also questioned whether, from a risk management perspective, large complex banks should be required to establish clear lines of accountability that make it possible to hold senior executives responsible for serious compliance breakdowns that lead to BSA program violations.

In many cases, Curry explained, BSA compliance failures are institutional failures that resulted from the collective decision making of a great many people over a long period of time, and as a result, it is difficult to attribute an institution’s failure to a single person. That needs to change, said Curry. “Management at large banks need to eliminate these accreted compliance weaknesses so that institutional structural flaws do not become an excuse for a lack of accountability.”

“Whatever the future might hold, it’s important that we continue our efforts to improve compliance under the current system,” Curry concluded. “We’ve achieved a great deal in this area, but the challenges are growing along with the risks. It will take all of our efforts, and all of the resources we can reasonably bring to bear on BSA/AML compliance to keep pace.”

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