Week In Compliance: Bankers believe that their employees do not want overtime pay

American Bankers Association reports that banks believe their overtime exempt employees do not want overtime pay, as stated by Christeena Naser, Vice President and Sr Counsel. This opinion stems from the Department of Labor’s new interpretation of the Primary Duty Test. “The term “primary duty” means the principal, main, major or most important duty that the employee performs. Determination of an employee’s primary duty must be based on all the facts in a particular case, with the major emphasis on the character of the employee’s job as a whole.” (DOL). ABA goes onto to state that the Test’s objective was to identify obvious non-exempt employees, but the new interpretation would seem to try to identify obvious exempt employees. The difference in nearly $27,000, or about 30 Million employees across all industries.

The Financial Crimes Enforcement Network (FinCEN) today announced a settlement with Desert Palace, Inc. d/b/a Caesars Palace where Caesars agreed to pay an $8 million civil money penalty for its willful and repeated violations of the Bank Secrecy Act. In addition, the casino agreed to conduct periodic external audits and independent testing of its anti-money laundering compliance program, report to FinCEN on mandated improvements, adopt a rigorous training regime, and engage in a “look-back” for suspicious transactions. – FinCEN

CFPB reported that it has handled 677,200 complaints nationally. – SubPrime Auto Finance News Staff

Big companies are some of the worst offenders in foreign corruption cases, but they are also increasingly policing themselves and self-reporting instances of bribery, new data show. The Organization for Economic Cooperation and Development analyzed 427 cases of foreign bribery in 17 countries to determine who’s bribing who, and how authorities are discovering corrupt practices. – Kathleen Caulderwood at International Business Times

FTC can sue companies for inadequate cyber-security protection, so says the United States Court of Appeals for the Third Circuit. – Dan Appleman at FCPA Blog

Caesar’s Palace to pay $8 Million penalty on poor compliance regime. FinCEN has also forced the Palace to take on additional action for boosting compliance an a lookback program to seek noncompliance in past transactions. “When it came to watching out for illicit activity, [Caesar’s Palace] allowed a blind spot in its compliance program,” says Jennifer Shasky, director at FinCEN.

“Whistle-blowers and insiders play an increasingly important role in our work,” says David Green, Director of the Serious Fraud Office in the UK. “I suggest… moving away from the identification principle of corporate criminal liability in English law and embracing something closer to vicarious liability, as in the USA,” he said in his speech at the 33rd Cambridge Economic Crime Symposium.

By performing an assessment of OFAC compliance programs and establishing a culture of compliance throughout the organization, a company can position itself to better understand and identify potential risk exposure. – Sven Stumbauer, Director in the Financial Crimes Compliance Practice at AlixPartners, LLP at International Banker

Jobs In Compliance

Opinion: FRB of Boston says Prepaid cards can be a savings tool, and I agree 

credit Danny Choo

Prepaid cards from credit card companies have grown significantly in the past decade. They offer credit transactions to those who do not have the credit history to have credit cards. They offer a way to build credit for those who cannot even open a bank account. These are people and families who make $25,000 or less. If you are reading this, you are very likely a person with a bank account and a credit card. You might not know, but there are people who do not qualify to have a bank account. I was once such a person. But I wasn’t the norm of such a person. I had graduated from college and I didn’t yet have a job. During college, I had a college student checking out. I was moving back home 2,000 miles away from my bank. So, I needed a local bank. Wells Fargo said that I had overdrafted too many times and I do not have a history of income that would otherwise let them overlooking this. I was shocked. I didn’t know that banks refused to open checking accounts. Even more astonishing, this was at a time when checking account were not free. I went down the street to Key Bank, who opened an account for me. I got a job and Key Bank had my business for many years. But most people who do not qualify for checking account aren’t in my position. They have never made enough money to have any savings at all, which means even if they had a checking account, it would sit empty. Even having an account for someone open a bank up to various risks, which all have a cost. But financial institutions have come up with a solution: Prepaid Card. This uses the credit network for transactions but at no time transactions beyond the amount in the card can be made. And banks do not have to offer any services, keeping all of the information on the card. Actually, in Eastern Africa, the same type of decentralized banking system is growing through cellphones. And if you think about it a little longer, Bitcoin and other cyber-currencies are just another decentralized payment system, albeit with more value involved. What Prepaid Cards offer is not merely a way to make transactions. It can be method to store value, as economists would put it. That is, a person can save money in such cards. The difference for the user is minimal for the most part. Sure, it is less secure because if you lose it, you’ve lost all of your money, just like cash. But it is safer than cash since it is possible to have an account on that card, even though it wouldn’t have any of the protections of a checking account. At least, there would be a remote way to stop transactions on that card, if lost, unlike cash. For the financial system, prepaid cards balances cannot be used to lend money. But banks are not starved for money right now. The Federal Reserve is offering money below the inflation rate, which means, banks are being paid to just hold money. The card balance does not flow through the system until it is used for a transaction, but it a clear benefit to the consumer who cannot afford to be connected to the financial system through depository banking. For banks, it allows them to have a credit history on those people should they eventually want to join the financial system. The banks also make money on the credit transaction. And for the system as a whole, it reduces risks involving money laundering, fraud, theft and cyber crimes.


How do you like the new weekly round up?


Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. He is a member of ACAMS and ACFE. 

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Bankers believe that their employees do not want overtime pay

Williams Sisters, unlikely to be affected by new Primary Duty Test Standards | credit Youtube

American Bankers Association reports that banks believe their overtime exempt employees do not want overtime pay. That’s not exactly what Christeena Naser, Vice President and Sr Counsel, said, but she might as well have in her comment letter. The Letter goes onto to state that the Primary Duty Test‘s objective was to identify obvious non-exempt employees, but the new interpretation would identify obvious exempt employees. The difference in nearly $27,000 per eligible employee, or about 6.3 Million employees.

“The term “primary duty” means the principal, main, major or most important duty that the employee performs. Determination of an employee’s primary duty must be based on all the facts in a particular case, with the major emphasis on the character of the employee’s job as a whole.” (DOL).

The change in Standard would reach approximately 30 Million employees across all industries, 6.3 Million of which are in financial services. The previous Standard deferred to states because many state standards were more inclusive than that of the DOL. The new DOL standard is much higher. being raised from $23,660 per year to $50,440. One should know that while these figures are yearly, the Standard applies to overtime pay on a weekly basis.

“The salary standard would reduce the number of individuals eligible for the exemptions by 6.3 million salaried employees, ” ABA’s comment letter states. The implication is that banks would reduce hours of 6.3 Million employees to the lowest end of full-time status as much as possible in order to avoid paying overtime. It also implies that DOL have reason to believe that the guarantee in employment due to the salaried nature of a role is worth very little. Considering how little guarantee there is, the DOL is onto something there.

Just because a bank employee makes more than $50,440 per year without overtime pay does not mean that that employee cannot be on an hourly wage. DOL has moved the cap on all hourly wage employees from $100,000 to $122,148. This means hourly employees can qualify for overtime pay as long as the non-overtime pay is less than $122,148 per year. ABA objects to this as well.

All of these Standard change-levels are based on data from the Bureau of Labor Statistics.

ABA objects to the Standard not be adjusted for geography. This is quite valid. A community bank in rural Iowa will be hit harder than a community bank in New York City.

But the rest of the complaints, and they are truly complaints, read as veiled threats. There are a lot of justifications based on what will happen if these Standards are applied. All of them are dire. All of them do not bode well for employees. For that strategy to work, the bank would have to assume that its employees do not know what is good for them. The direness of the predictions imply that banks will be forced to hurt their employees by complying with the new DOL mandate.

If enumerating all the ways the ABA’s Comment Letter fails to make its point to someone who might have helped craft this new Standard at the DOL, the failure can be summed up thusly: ABA’s Comment Letter fails to convince the Department to stop the pursuit of the new Standards because it fails to address the issues that are important to employees as seen by the Department. At no time does the Letter acknowledge the good that the Department is trying to accomplish. So, when the Letter provides alternative solutions, it carefully avoids stating what the such solutions provide. By avoiding such valuation, the ABA avoids having their alternative compared to the Department’s solutions. And by avoiding the value of their solutions, the ABA makes their members seem unconcerned with the wellbeing of bank employees, and does not avoid to address how the new Standards are not as beneficial as they can be.

Overall, the letter is a carefully crafted legal argument wrapped in economic concerns. The DOL, I assume, are seriously concerned with economics and less so with legal intricacies.


I have read ABA’s Comment Letter for you so that you don’t have to. If you don’t like how I interpreted ABA’s Comment Letter on the new overtime exemption and HCE standards, comment below.


Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. He is a member of ACAMS and ACFE. 


Bibliography

Hawaladar’s Lament

from Priceonomics

Hawaladar is a person who provides money services (hawala) to criminals. He is part of the criminal part of the shadow banking system. Shadow banking system is the banking services offered by non-banks. For example, a hedge fund could provide a loan to a company, which would be a shadow banking activity. Halawadar does something similar.

A Hawaladar is a person who moves money from one place to another using his network of contacts he’s developed usually from traditional import-export activity. So, for example, if a criminal in London wanted to payoff another criminal in New York in the amount of $10,000, the criminal could go to a Hawaladar in London, give the Hawaladar $10,000. The Hawaladar would call up an associate in New York and ask him to pay the criminal in New York $10,000. The Hawaladar in London would settle up with the associate in New York at a later time. The settlement usually is underpricing or overpricing of the goods being traded. The Hawaladar and the associate have both charged money for the service, of course, which the criminal in London is usually responsible for. And, in order for all of this to work, the associate in New York must trust the Hawaladar in London to settle up.

Nowadays, are Hawaladars really doing any trading? They are just a money service business.

The Hawaladar has been facing more competition over the past decade. Now, the London criminal could buy a prepaid debit card with cash at any store and then send that to the criminal. It does not require any intermediaries. The cost of buying a prepaid debit card is next to nothing. I think I could go to the corner store on my block and get one for about $5 and load thousands of dollars on it.

There are also other ways as well. People who do not have international trade businesses can get in on the Hawaladar game. I could pay off someone on behalf of a criminal using my PayPal account. I could use my Google Wallet. I could use my ApplePay. I could use Square, the payment service. I could use Venmo. I could use any store with a credit machine merchant account and pay them on my credit card and the store could pay off the criminal. It will just look like I paid for a product or service. I could even use Bitcoin.

The increasingly greater number of easy payment/transfer options are making it possible for criminal activity to be paid without the use of a Hawaladar.


What do you think was the weapon that was used to kill churchgoers in Charleston, South Carolina, confederate flag or gun?


About the Author: M. C. 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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Black Market Peso Exchange (BMPE)

Black Market Peso Exchange (BMPE) is a way of laundering money, or to make illegitimately earned monies seem legit, hiding the criminal activity that created the income.

Diagram of Black Market Peso Exchange from Chase & Associates, Inc.

It is really no different than other common forms of laundering money but a term was created to capture the massive amount of activity that takes place to clean drug money.


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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KYD Mean Know Your Data

http://datamigrationresources.com/
Data Migration from Data Migration Resources

Knowing your data is very important and I find that many bankers think they know data. I’m not exactly sure what they are envisioning, but if they are envisioning pivot tables and vlookups, then they know about as much as a freshman MIS student after week of classes. (MIS means management information systems.) All systems can be configured to generate data.

This subject is just too big to even do an overview, which would take a semester worth of  classroom work. The best thing for any organization is to make sure to hire a team of technical experts in both computer sciences and statistics to manage and analyze data to get a good understanding about what the data is saying. For now, I will just briefly mention the two sides of KYD – data management and data analysis. Knowing one does not make one remotely close to knowing the other.

Data Management is the work of software and hardware professionals who keep data like inventory. They are often under-appreciated. For the data layman, data management looks like a bunch of overpaid people who move around bits of information from one server to the next. Data Analysts, however, know how crucial these people are. In order to do data analysis, understanding of all of the issues to maintain data analyzable is incredible difficult, especially as the organization gets larger. Size of data sets present technical problems that most people do not encounter, but data analysts do. Software often cannot handle computing data set size beyond a certain point. Data managers are the people who solve these issues, making it technically possible for data analysts to do their work. Also, data managers can keep data safe from corruption or breaches in security or controls.

Data analysts have received lots of attention over the past decade. Almost all consuming facing internet now is feeding data centers so that analysis about potential customers can be mined. But newspaper reporters are often poor interpreters of data. So, reading their work might lead one to have false sense of confidence about this topic. The only place I can think of right now that a data layman can go for news and data analysis is Nate Silver‘s Five Thirty Eight, the blog that first used to do data analysis of baseball stats and then turned to using the same type of analysis to predict presidential campaign results for every county in the United States. In 2012, he correctly predicted the presidential election results for each state and 31 of the 33 senate elections as well. This type of work cannot be done through mere argument. One cannot convince someone else of the correctness of a prediction. One must simply wait for the results. And then one must analyze whether the predictions were correct due to luck or predicted causes.

Opinion

In order for banks to be able to better protect their businesses from cybercrime and enhance business opportunities, they will need to hire data managers and data scientists in every area of the bank. Currently, most of these people are in operations. But this simply isn’t going to be enough. A large portion of the world, even a large portion of Americans, are not in the traditional banking system and now they are being provided options without having to join the banking system. This is good for an economy up to a certain point. And then it will hinder economic growth. Why? Because banking is the industry that finds excess money and invest into areas of the economy that needs money. Providing transaction services might facilitate transactions that could not be done before but as long as those funds never enter the banking system, governments will be required to borrow more money to fund their private sector growth, rather than private sector figuring it out for itself.

CVaR Mean Conditional Value At Risk

CVaR is a variant of VaR,  Variance at Risk.

History

VaR was developed by JPMorgan risk group in the early 1990s. Most of that risk group left to start a consultancy to sell the risk management calculation to other banks. It was originally developed because the executives at JPMorgan wants a simple way to wrap up all of the risk into a single number. VaR is the amount in dollars that the institution is expected to lose before trading begins the following day, and therefore required to borrow overnight. The calculation was inserted into a report called the 4:15 Report, which was a report that came up at, you guessed it, 4:15 PM, or fifteen minutes after each trading day. The tool became very effective and useful, so much so that Basel II Accord incorporated it.

CVaR is nothing more than taking the various risk variables and then weighting them for what a risk manager believes is a more accurate view of the market risk. Obviously this has some subjectivity to it. The idea is that VaR doesn’t weigh risks from, say, lending equities differently from trading on the bank’s books.

Controversy

There has been a long running controversy over VaR, and therefore CVaR. VaR is a probability calculation and therefore it doesn’t tell its reader how much the firm could lose. It tells the reader how much the firm will likely lose. The qualitative difference between the statements is the former is a definitive number while the latter is a forecast. The former is accurate and the latter is prediction, which is inherently inaccurate. The quantitative difference is $0 and infinity. Since VaR is used to either insure against losses through borrowing or hedging, it is merely spreading the risk of loss and therefore, making the whole capital markets system bear the risk of a firm. The benefit is that because it is probability-based, it is very good when the markets are normal. VaR opponents says there is no such thing as normal.

Opinion

Both sides are right. VaR is an effective tool to manage risks that stem from business-as-usual. But management rely heavily on it, and the system gradually build up risks for firms and eventually implodes. And it is a poor way to forecast extraordinary large risks, also known as tail risk. As a matter of fact, it is specifically designed to truncate the tail risk so that it can arrive at a dollar figure. One way to think about how this cannot work in all situations is to think about shorting a stock. If you buy a share of XYZ for $10, the most you can lose is $10 because the value of the shares cannot go below $0 and shareholders are not liable for debts beyond the the value of equity and assets. But if you short XYZ, it means you lose money every time XYZ’s price goes up. Well, there is no upper limit to how high the stock price can go. This is the reason why, as long as a bank holds shorts of any sort, it can lose infinite amount of money. Not likely, but possibly.

So, while both sides are right, only the side in favor is wrong. Easy to say, but hard to swallow if you are managing a bank and you need some way to reduce market risk for your bank. VaR is a very useful tool.


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. He is the author of the forthcoming book History of Money Laundering: How criminals got paid and got away.


Say Hello To My Little Friend…

… I call him FinCEN.

FinCEN, the Financial Crimes Enforcement Network, a division of the US Department of Treasury, issued  a GTO, or Geographic Targeting Order. This is a rarely used order, for the obvious reason that money laundering is usually not concentrated in any one place. But Miami businesses are going to receive closer scrutiny from the sub-Treasury group because of money laundering related to drug trafficking. Effectively, this lowers the currency reporting threshold from $10,000 to $3,000.

'You've not been involved with money laundering before have you Joe!'This is a good time as any to discuss Black Market Peso Exchanges, or BMPE. This is a money laundering scheme often used by Colombian drug cartels to repatriot their US earnings back to Colombia. The exchange serves as the middle man. The exchange imports good into Colombia from the US, the imports being products that the cartel wanted, either to sell to the local market or for themselves. Cartel gives the exchange US funds, which is used to purchase goods for export. Effectively, it looks like the exchange is shipping many small orders from retail customers in Colombia, but actually, it is just laundering money.


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. He is the author of the forthcoming book History of Money Laundering: How criminals got paid and got away.


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