PayPal’s $7.7 million fine is a boost to CompliTech

PayPal Logo
PayPal Logo

Last week, PayPal, the eBay owned online payment company, was fined $7.7 Million for 486 OFAC violations. And that was a reduced fine just for 2013. 2014 investigations have not been completed at this time. That comes to nearly $16,000 per violation. Considering the number of transactions PayPal does, 486 is nothing. But then again, if fines were applied to a larger number of transactions, PayPal wouldn’t have a viable business model. And these violations were made with a strong compliance and anti-money laundering department. Imagine the violations without such a department in place.

PayPal and other Financial Technology (FinTech) firms are categorized as Money Service Businesses (MSB’s), not banks, because they do not offer depository services. this categorization does not absolve them from regulations pertaining to transactions and sanctions, like banks. Last week, they found out what it will cost them to stay compliant.

Generally, FinTech firms consider themselves to be the new alternative to banks. So, they don’t work with banks unless forced. So, compliance is not something FinTech spends a lot of time worrying about, resulting in less compliance experience.

Banks, however, despite their effort to reduce the effects of regulations, have been beefing up their compliance departments as well as vendor services. Some of the vendors are in the new sector of Compliance Technology, or CompliTech.

CompliTech has been around a decade or more but its recognition as a sector of its own is brand new. CompliTech is made up of a handful of firms across the US and Europe as well as groups within existing large bank systems providers. Their products are not yet fully tested, still require incredible amounts of human intervention and are expensive. Small financial players like community banks, credit unions and FinTech cannot afford their services.

But these are the very firms that need CompliTech services the most. If an organization is trying to provide inexpensive products and services with convenience without compliance programs afforded by economies of scale afforded at large institutions, they run a greater risk of serving cash-based businesses and immigrant populations with ties to foreign businesses. These providers face all of the threats of global banking without the benefits. To make matters worse, when a few CompliTech firms emerge as the leaders in the industry, big banks, bank systems providers and large consulting firms are more likely to snatch them up, leaving fewer options for FinTech to fend for themselves.

PayPal is an exception to all of this, as it is an exception in FinTech. It has been a round a while, it is large, and, these afford it a sophisticated compliance program. It hires PhD’s to do statistical analyses and ex-military intelligence officers to execute counter-terror financing. What startup can afford such programs?

CompliTech will eventually get around to serving FinTech. But until then, FinTech is far from taking over the transaction space.


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


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FinCEN sets enhanced due diligence against high risk countries

FinCEN is increasing its effort to fight money laundering and terrorist financing. It is doing it by setting higher risk-based due diligence requirements for financial service institutions. The requirements meet the standards set by FATF.

FinCEN also  provided a list of countries that these requirements will be applied to, though if the risk-based approach results in similarly high risk issues in other countries, financial institutions are required to use these due diligence measures as well. The countries are as follows:

http://www.undervaluedequity.com/Country-Risk-Ranking-System-How-I-Assess-My-Stock's-Country-Risk.html
image from Jeroen Snoeks
Sanctioned countries:

  • Iran
  • Democratic People’s Republic of Korea (DPRK)

subject to FinCEN enhanced due diligence requirements:

  • Algeria
  • Ecuador
  • Myanmar

Improving Global AML/CFT Compliance: on-going process (also, subject to FinCEN enhanced due diligence):

  • Afghanistan
  • Angola
  • Guyana
  • Indonesia
  • Iraq
  • Lao PDR
  • Panama
  • Papua New Guinea
  • Sudan
  • Syria
  • Yemen

Jurisdictions not making sufficient progress (also, subject to FinCEN enhanced due diligence):

  • Uganda

Jurisdictions no longer subject to listing and monitoring (FinCEN recommends that financial institutions take the FATF’s decisions and the reasons behind the delisting into consideration when assessing risk):

  • Albania
  • Cambodia
  • Kuwait
  • Namibia
  • Nicaragua
  • Pakistan
  • Zimbabwe

About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


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SCCE means Society of Corporate Compliance & Ethics

http://www.corporatecompliance.org/
Society of Corporate Compliance and Ethics

Society of Corporate Compliance & Ethics (SCCE) just reached 15,000 members. It is a cross-industry/cross-border organization for compliance professionals. This organization has members in 77 countries. The Society has educational programs, primarily focusing on preparation for Compliance Certification Board membership, a subgroup within the organization that pass stringent exam and other requirements. Nearly a third of the Society’s members have this certification.


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


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Sluggish ABA Routing Number Lookup

American Bankers Association (ABA) has launched a new tool it hopes will help bankers and consumers alike: Routing Number Lookup.

The tool is very simple to use. Enter the routing number to search for bank names and locations, or enter bank name, city and state to retrieve the routing number. I took it for a test drive and here were the results.

I entered in a routing number and verified that I was not a robot. My search result came back with an error.

http://routingnumber.aba.com/Search.aspx?xr=t&xp=f&fb=&ExcelCache=1440&mode=&AdrBookEmail=&PageSize=20&OrderBy=LastName_ASC&Code=122100024&Name=&City=&State=&PostalCode=&g-recaptcha-response=03AHJ_VutPO4AT19t-yXTC-vzX5fqaG2EmeT2ZpiBpUiiMC_OcaeFEvS1oPrfrUoJuTPoOFIPuhZ2aRvOmmjDQrxfdaRedGgjUHCppGaTdRSc6OrMyivDiRAiiP9kmM0n8bPIdF9FsWvUbSe8eV1PoaPR6YIrn7hoPqX5H-wVtMIGZxrbZzC4yyk1FjQ5YoYGHTJvDblj5gbUPkivxVhvml1XFZqWvKBG78Boqil9-VlHMvEKy98fD-46H1hP8qAXCqxbXo-l55F5LaFPdP0r7X75YzRgy9qL-ETMx3ns8GXvOe7SQgc-6qf1ds5S2fypsbfxZe7DPEFLvth-WxFIDEmapxhFwFUfI8AiXgU-aVbdmQ8ZZq3SQ7nRlnVHQt4cxQCc0UpkdHoQzeTYQH4n6G1pUX3_JzGePig
ABA Routing Number Lookup

I, then, entered in the bank name and location. The bank name I entered wasn’t some official legal name, I just typed in a commonly used name. And I picked a city and state – address not required – where I knew the bank had a branch. The result was a solid list of branches of that bank in that zip code.

Conclusion: the system is not ready for prime time but it sort of works.

It is powered by Accuity, the UK-based technology solutions company that focuses on financial services.


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


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Alibaba is being kicked out of Taiwan

http://www.arageek.com/2015/02/18/jack-ma-the-richest-chinees-person.html
Jack Ma, Founder & CEO, Alibaba Group

Alibaba, the Chinese AmazoneBayPaypalDHL all-in-one, has been ordered to leave the Taiwanese market by Taiwanese regulators. It ran afoul of a law that required all mainland Chinese companies to go through a special registration in Taiwan to do business there. The Taiwanese subsidiary was registered as a fully controlled entity of Alibaba’s Singaporean subsidiary. The Singaporean subsidiary is a wholly controlled by the Mainland company, making the Taiwanese subsidiary a Singaporean company in name only.

Regulators discovered that Alibaba had not passed the registration process required of Mainland companies when reviewing Alibaba’s filings with the SEC in the United States. Alibaba filed papers with the SEC to publicly trade its equity shares in the US markets.

The purpose of the law is to prevent the Communist Party from taking a hold on the island.

Founder and CEO of Alibaba is the every so charismatic Jack Ma.

Taiwan’s official name is Republic of China, not to be confused with Mainland’s official name, People’s Republic of China. The Taiwanese government was formed when the Communist Party kicked out the party from the Mainland. In the early days after the communist revolution, most western powers recognized the Taiwanese government to be the legitimate government of China. Unofficially, US President Richard Nixon recognized the Communist Party as the ruling party. And officially, US President Jimmy Carter recognized the Communist Party as the ruling party. Since the turn of the century, Republic of China has been on a campaign to consider itself an independent nation, seeking a seat of its own in the United Nations and developing diplomatic relationships across the globe. Also, it has supported a grassroots campaign in the United States to have US citizens and permanent residents of Taiwanese decent to identify themselves as “Taiwanese,” rather than Chinese, in public and on the census.


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


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Kleptocracy is a system setup to benefit a select group of people over a whole population

Kleptocracy is a system that benefits a few over the population as a whole. It is a term usually used for governments but it can be used for corporations.

from Hunger Games
from Hunger Games

Russia would be a well known kleptocracy. Russian people pay taxes and the tax revenue is used on projects that hire corporations whose executives are supporters of Vladimir Putin. Not only are Putin’s supporters winning contracts over non-supporters even when qualifications and price would support the non-supporters over a supporter, but also the executives are spending the funds in such a way so that it benefits them directly. These executives are using these funds to build themselves houses and buy expensive things. recently, a few government ministers have been found to own recently built expensive mansions, which does not make sure considering their background of having no money and their positions not affording them such funds. This is another direct kleptocratic method.

It is a little more difficult to use it for corporations. The use of corporate funds for direct personal gain would be fraud and embezzlement, but if it is systemic, it would be kleptocracy.


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


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Why is diversity so important for Compliance?

Compliance in the Financial Services sector is in great need of racial diversity.

http://www.dcjobs.com/As long as cultures remain segregated by race, racial diversity is one of the tools to create a well rounded Compliance Department. The ultimate goal is to have mindset diversity but the best way to achieve this is still through racial diversity. people of different cultures question what is given in cultures that are not their own. While an intimate knowledge of a culture is also important. that isn’t what missing in compliance today, or even historically. Compliance needs to be a place that is open to questioning everything in a business. The people most likely to question the givens in a business are those who are not familiar with the culture of that business.

Banking is still very much a white man’s industry. At least, 15% of bank holding companies are non-white. Compliance departments have done a good job of retaining racial minorities. Many Compliance departments are 30% non-white.

Women have fared well in Compliance over the past couple of decades. Many Compliance departments have more than 50% women. There is still plenty of work to be done on the gender equality front because no Compliance department I know of have more than 50% of Chief Compliance Officers (The compliance officers in charge of whole units) are women. Still, the momentum have been there for a long time and parity is within in grasp.

What concerns me is the reasons why women and racial minorities have succeeded in Compliance. The reasons, I suspect, have more to do with the white-male culture of the lines of businesses more than Compliance departments. The cultures of lines of businesses are white and male, and they force women and minorities out. Looking at the executives leading bank units. A few women leaders and almost no racial minorities. Until banking culture is fixed as a whole, departments like Audit and Compliance are going to be places where women and racial minorities will need to take a front seat in order to change the culture because these are the departments that are responsible for pushing back.

The solution I have to staffing the right people in Compliance over the long term is to have promotions be, in great part, an election. Currently, Chief Compliance Officers are chosen by bank executives and approved by bank boards of directors. I think that should remain, but the pool of candidates should be chosen by the compliance departments. More of the department is involved in choosing the pool, more likely that the CCO will be a woman or of color. As a matter of fact, that possibility more than increases by 100%. This solution, obviously, would change compliance departments slowly over time. But that’s the kind of change that is necessary to maintain a talented compliance department while choosing the right leaders. It is a balance between installing CCO’s who can work with the existing team of executives while maintaining the kind of independence necessary to be the best professional.


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


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