If the French strip citizenship…

http://www.liberation.fr/france/2016/01/27/christiane-taubira-ecarte-l-idee-de-participer-a-une-primaire_1429318
Christiane Taubira, Minister of Justice via Liberation.fr

France is considering an amendment to their constitution that would strip French citizenship to those who are accused of terrorism and possess duo-citizenship. There is a problem with this, of course, because anyone can be accused of terrorism. What happens if that person is not guilty?

And then there is the racism that is neatly disguised as  counter-terrorism. Citizens of the European Union generally do not hold duo-citizenship because they have the economic freedom to do as their like across borders within the Union. That means, this law primarily targets non-Europeans in France. For this reason, Christiane Taubira, the French Minister of Justice (closest equivalent would be the American Attorney General of the Department of Justice), is stepping down. She is Afro-Latin born in French Guiana. She is at no risk of being accused of terrorism, of course, but it isn’t as though she can’t see right through this proposal.

As a financial compliance issue, this adds the terrible problem of figuring out how to treat such a person. Should this person hold a French bank account but is no longer a French subject, this person should be treated as a foreigner. Sounds simple but foreigners have limitations and other criteria attached to their French domestic accounts. Banks will have to scramble to recharacterize bank accounts. Operationally, the best way to do this would be to simply give the interested person a new account, but that puts the bank in jeopardy of losing the account altogether. This is an obvious cost to business that doesn’t seem necessary for a bank because… well, because the person isn’t a terrorist, or at least has not been found guilty of terrorism. Losing money that does not make the financial system and the nation any safer isn’t really a very good way to do business.

The only thing saving the French bank from losing that customer’s business would be that all banks in France would be subject to this. But because of the Union’s economic freedoms, the newly non-union citizen sill still be allowed to hold an account outside of France and even outside of the Union and still do normal daily business. The transition might be troublesome, of course, but that is no more troublesome than simply starting a new account. So, it isn’t much of a save for the French banking system.


Marcus Maltempo is a Certified Anti-Money Laundering Specialist and a Certified Fraud Examiner with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. 

 

//

Advertisements

Importance of formal training in Compliance

There are many jobs that one can learn from experience alone. Compliance Officer is not one of them.

ACFELOGOLike Law or Accounting, becoming an effective compliance officer requires three sets of knowledge: foundational knowledge gained in formal education, specialist knowledge gained in training, and management and leadership knowledge through experience. Foundational knowledge is important because that’s the common knowledge with which the world operates. And management and leadership knowledge can only be developed through real world experience, no amount of conceptual knowledge alone will make one a good manager or leader. The middle piece, the specialist knowledge, requires training because without it the Compliance Officer simply becomes a Compliance Manager or Analyst.

The reason Compliance is like Law or Accounting is that the logic with which Compliance works differs. The logic behind complying with Financial Regulation comes from understanding a business at the operational level as well as the contribution the firm makes to the financial markets overseen by the regulator. Understanding the operations of a business could be gained through training and experience within a business. Understanding the requirements and priorities of regulators require interfacing with the regulator. Many roles are title Compliance Officer, but the true CO roles are the ones that require both arenas.

CAMS LogoThere are several ways to gain the necessary training. Many large financial institutions have Compliance training. Usually, this is the bare minimum of Compliance training necessary. Some of them might not actually be Compliance training but simply a training about suspicious activities awareness. To be qualified as Compliance training, it should include information about regulatory functions and the responsibilities of various regulators and their interactions with Self Regulatory Organizations (SROs) and private firms. In the US, this means a need to cover some combination of the following entities:

And, at a minimum, there is a need to cover the following topics:

These are a lot of topics and no one can be an expert in all of them. But without exposure to this full spectrum of knowledge, a Compliance Officer is not equipped to dealing with the complex nature of the competing interests without an overview of these subjects. There are several ways to get formal training on these entities and matters.

The most common, direct, and practical way to get the formal training needed to be equipped to be a Compliance Officer are through associations that have developed the certifications.

There are programs at a few institutes of higher education that offer coursework specifically addressing these entities and topics:

  • University of South Florida has undergraduate, graduate and PhD programs in Criminology
  • Pace University has Certified Compliance and Regulatory Professional (CCRP)
  • Utica College has MS in Financial Crime and Compliance Management
  • Charles Sturt University has Diplomas, BA and MA degrees in Anti-Money Laundering and Counter Terrorist Financing, Intelligence Analysis, and Investigations

I have provided a concise, compelling reason why you should be staffing your firm with trained Compliance Officer or training the untrained employees who are moving into Compliance. Hopefully, this will be a good starting point for you to think about what kinds of issues your firm will have to face and the value a trained Compliance Officer will bring in handling them.


Marcus Maltempo is a Certified Anti-Money Laundering Specialist and a Certified Fraud Examiner with more than a decade of experience. 

Are your advisors text messaging clients?

90210 on CW
via Fanpop

Where you know it or not, the financial advisors at your firm are likely text messaging some of their clients. If you are not capturing this, you are letting FINRA to build a case against your firm.

FINRA might not have a case against your firm for any reason. And noncompliance with Rule 3110 is not one of the major issues facing firms today, but it can be tacked on easily to charges against the firm for other failures. The Rule requires, among other things, an annual review of all communications regarding the business. The Rule reads as though it only pertains to internal communications, but it includes all communication an internal person interacts with, so, it actually includes all communications. The rule is written to avoid public communications that an internal personnel did not actively participate, such as the publication of an article about an interested investment that the advisor had no knowledge of, even if the client did.

Leaving the pedantics aside, the major problem with text messaging is that usually the only repository for them is on the phones of the financial advisor. There are other messaging services that might store messages in a cloud for later retrievable, but that adds another layer of compliance question: is the cloud not controlled by the firm but controlled by the FA compliant enough?

The conservative answer is, of course, no. Whatsapp‘s cloud storage of messages is not designed to comply with FINRA rules. They also have no responsibility to keep the messages, let alone comply with an FA’s firm if the FA doesn’t want the messages reviewed.

 


Marcus Maltempo is a Certified Anti-Money Laundering Specialist and a Certified Fraud Examiner with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. 

Masters, JPMorgan’s Ball and Blockchain

Blythe Masters, the former head of commodities at JPMorgan, became the CEO of Digital Asset Holdings about a year ago and she has been on a tear through Wall Street talking up a recordkeeping technology called blockchain.

Blockchain is most famously tied with the digital currency BitCoin. It isn’t actually part of the digital currency. It is commonly known as a type of public ledger, a recordkeeping system, if you will. It is conceptually simple, but technologically very advanced. The idea is to have one central accounting system for all transactions where the whole world can see. In this way, embezzling is more difficult to do. One can’t only be financially savvy, but also be technologically so. Not just a little but a lot. Because blockchain is  central ledger for transactions, there is an external reference that is common to the buyer and seller. So, when a customer tries to buy something from a seller, the currency portion of the transaction (payment), goes through the blockchain, which verifies that the currency is in the buyer’s account and no one else on the blockchain is supposed to have it.

It makes every penny into a unique penny. We have a unique number on all paper bills in the United States, but that unique number really isn’t used for common transactions. This provides that extra security.

Masters is leading the idea that blockchain technology can be brought to Wall Street. Most senior investment bankers are skeptical. Of course, they are. Most senior investment bankers don’t understand blockchain or BitCoin. And, when they do, they generally know as much as you, my reader, because you now have read my previous paragraphs. To Masters, it is a no brainer. Here’s a technological tool that reduces counterparty verification which should, in theory, reduce the number of days it should take to clear a trade, thereby reducing cost.

The risk, aside from bank management not even understanding the significance of this technology, is the risk of systemic fraud or glitch. But one thing we’ve learned over the last century as we’ve centralized many of our transactional activities is that it greatly reduces the inherent risks of transactions, but because of the way our laws allow for increased risky behavior when risk has been reduced, it will likely increase the residual risks. There are a number of examples of this. When all trading goes through fewer routes to their eventual transactions, there are fewer route that need to be monitored and therefore monitoring and surveillance can improve. But when there are losses, they are usually big because the glitches are systemic or categorical. The Flash Crash it an example of centralizing and automating trades through fewer pipes led to big and quick irrational dive of the market.

I for one is a proponent of the BlockChain. I am not the person to discuss the potential economic consequences of this, but it would be the next step in the evolution of the Depository Trust Company, the central counterparty in US capital market trading.


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. 

Week In Compliance: Local News uses beauty as click-bait

Hello on this crisp-cool Friday here in New York. Excuse my unexplained absence, the reason was personal.

Rochelle Yazzie

News from Albuquerque: “Southwest Capital Bank has hired Rochelle Yazzie, who will work as an Operational Compliance Specialist.” Okay, so, this isn’t exactly new to the compliance world at large, but I find it funny that this is news to Albuquerque, especially for someone who is going into a role at the bottom of the compliance organization. Just goes to show you how small that town is. Yazzie showed up on the local newspaper’s “People On the Move” column. – Albuquerque Business First 

“Dozens of Swiss banks have been spilling their secrets this year as to how they encouraged U.S. clients to hide money abroad” – WSJ

New CFPB proposal would publish arbitration awards given to consumers from banks and credit unions, making it part of public record like court cases. – Tina Orem from Credit Union Times 

God giveth in investment returns – Amvona Fund LP is a hedge fund run by a Greek Orthodox church, which exempts it from compliance from SEC. It manages $20 Million. – Claire Groden at Fortune

SCCE‘s 2015 Compliance Officer Compensation Survey is out, HERE!

2015 Compliance and Ethics Officer Salary SurveySome takeaways from the aforementioned survey: It is does not include non-managing compliance officers, it does not include CAMS or CRCM or many of the technology certificates, it does not include many people in financial services (just 8%). 50% of respondents who make more than $1M in compensation per year had JD’s. And, if presentation matters to you, it used Microsoft Excel’s default setting for tables.

KeyCorp seeking $4 billion purchase of First Niagara.” (The Buffalo News). Buffalo, NY is obviously worried that this could mean job losses for the area. For me, I’m observing KeyCorp executing on a long tradition of itself: buying smaller banks. KeyCorp’s ambition is to become another national bank, the likes of JPMorgan Chase, Citigroup, Wells Fargo, and Bank of America Merrill Lynch. There are couple other contenders for such a role: PNC, USBancorp, Capital One, Suntrust, BB&T, Fifth Third, Citizens, M&T, and Huntingdon.

Singapore‘s tax authority collects $217 Million in unpaid taxes. (The Business Times). Even on the island of prosperity, tax evasion happens.

Goldman Sachs fined $50M by NY regulator for leaking data from Federal Reserve Bank of New York. (ValueWalk).

Jobs In Compliance

Opinion: 3,415 American renounced their citizenship

American immigration policy is a problem. Not just do poor people from other nations want to come here but rich people from America want to leave. In 2014, 3,415 people gave up their American citizenship. As of September 30, 2015, 3,221 people gave up their citizenship. That’s 15 times more than in 2008. (Sophie Yan of Local Syracuse). This is a result of FATCA, the tax law that requires reporting assets held by American in foreign jurisdictions. The law’s reach is long, just $10,000 in assets. While it is illegal to renounce American citizenship because of the tax bill associated with foreign assets, the the law faces a steep cultural hill. America was founded on the fact that it did not want to pay taxes to Britain. The problem with many of the new financial regulations is that they don’t tackle the primary problems, they tackle tertiary ones. FATCA is no different. Reporting foreign assets might be a solution to getting information, but proving that a person gave up citizenship due to taxes is quite difficult. Without explicit evidence, the only evidence that would exists, at best, are circumstantial. Plus, not all jurisdictions cooperate with the US, and even when they do, they don’t cooperate with laws that would be financially beneficial to them. FATCA is one of those laws. They could be giving up valuable tax dollars in various forms if the interested person finds the jurisdiction supporting US tax policies that was being evaded. The other problem with jurisdiction is that FATCA will likely reveal tax avoiders, not tax evaders. The difference is that tax avoiders are avoid taxes using the rules while tax evaders are not paying taxes they are supposed to be paying either by misclassifying accounting rules or simply hiding the funds through some legal convolution. The solution for the immigration problem is extremely complicated. Plus, I don’t have an integrated, holistic one to share with you. I just wanted to point out that regardless of the law, the culture of not paying taxes is the primary problem. The solution really should be cultural, not legal.


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. 

Week In Compliance: Blatter Loses Control, Swiss Open Investigation

US Deputy Attorney General Yates publishes memo that explains six changes that will take place in FCPA enforcement and investigation. DOJ intends to focus on individuals and will not resolve any related corporate involvement until all related individuals’ cases are resolved. FBI has tripled its International Corruption Unit in order to make this more than lip service. You can read the memo HERE (PDF).

Baby Boomers are targets to securities fraud in Free Meal Seminars. North American Securities Administration Association, association of state securities regulators, warns “senior investors to be aware that a combination of “free lunch” seminars, misleading professional “senior specialist” designations, and abusive sales practices can create a perfect storm for investment fraud. Remember: there’s no such thing as a free lunch.” Read the full warning HERE (PDF).

ABA Chip Card Inforgraphic
ABA Chip Card Inforgraphic

American Bankers Association released Chip Card Infographic:

Financial services firms have been getting blackmailed by DD4BC (Distributed Denial of Service for Bitcoin). In Q4 2014, there were only 10 reported cases. In Q2 of 2015, there were 83 reported cases. BitCoin is a decentralized currency and transactions can be performed in complete anonymity. The US treats BitCoin as an ordinary asset rather than currency, requiring a gain/loss realization calculation for every transaction, as one would if one sold a painting. While this makes the use of BitCoin cumbersome, it does legitimizes BitCoin. It also means, it is not treated as currency for reporting purposes to the OCC. – Olivia Solon for Bloomberg

For a better, more entertaining explanation of this type of extortion, RadioLab recently published a podcast that explains a similar type of extortion as an introduction to its episode about Darkode, a place on the internet where hackers could buy and sell hacked assets or rent access to hacked networks. – RadioLab

Credit unions might not be filing appropriate SARs and CTRs, says Jennifer Shasky, Director of FinCEN, at National Association of Federal Credit Unions. – Kevin Funnell, BankLawyersBlog.com

Durbin Amendment has had a mixed impact on the costs of accepting debit cards, the retail price of goods and services and restrictions on debit card use. – DoddFrankUpdate.com

FIFA 15, the game on XBox, Play Station and PC, was 15% of EA Sports’ revenue in 2014. FIFA 16 came out this week to great fanfare, now that women’s teams are also on the game. Due to the bribery scandal being investigated by the DOJ, many fans are boycotting the game. EA Sports has sued FIFA in relation to this outcome. This impacts not only FIFA 16, but all future FIFA games by EA Sports. Their contracts lasts through 2022. – Ilya Zlatkin from FCPA Blog

Swiss authorities open criminal proceedings against FIFA president Sepp Blatter – Christopher Elser, Tariq Panja and Hugo Miller at Bloomberg

“During the first half of 2015, FINRA reported $37.5 million in fines from monthly disciplinary actions, compared to the $42.2 million reported in the first half of 2014.” – The Compliance Digest at Quest CE

“… renewed concerns that compliance officers could be blamed for violations committed by others at their companies.” –  Matt Rybaltowski at Reuters

FDIC to provide regulatory relief to those affected by fire in California. – FDIC

Jobs In Compliance

Opinion: Compliance at Credit Unions 

I think this is a major issue. Credit Unions are usually smaller than Community Banks, but they offer almost as many products. CU’s face all of the same risks associated with those products, but they tend to have less resources to prevent, deter and investigate money laundering or other financial crimes. With the recent news about the statistical analysis that concluded that Credit Unions are way under-reporting suspicious activity, this issue isn’t likely to go away. Ever since the financial collapse, a lot of people have taken to move their money to CU’s. For good reason. Since these institutions are not profit driven, they are operational efficiency-driven, any excess funds beyond capital funding is returned to depositors. If these depositors are effectively customers and investors, we can assume that when it is convenient for them to be one or the other, they will. In order to pay for acquiring the compliance resources, the CU’s will have to return less money. But if they aren’t returning much money to begin with, then they might still be underfunding compliance programs. For criminals, this situations is perfect. There are several ways to solve for this. One solution would be to centralize the compliance of credit unions. Along with the solution comes the problem of making the credit unions too uniform and, possibly, losing the very efficiency they strive for. Another solution is to subsidize compliance programs. Then the issue becomes the fairness of the subsidy amounts. Another solution would be to close down CU’s that are not meeting the regulatory requirements. This leaves a vacuum in the market, which is also not ideal. But that would force criminals find other ways to finance their activities, and those alternatives aren’t as good, for the most part. All of the solutions have are accompanied by major negatives. I am not leaning toward any one or combination of them. I think, though, the issue of compliance programs at CU’s should be given far more attention than it is receiving.


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. 

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.