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. 

Iran leads AML index… but…

Basel Institute on Governance, an NGO think tank focused on corruption, published a ranking of countries based on AML risk. Iran, Afghanistan and Tajikistan topped the list. The top ten were all countries with low income and a weak rule of law.

Aside from New Zealand and Chile, the bottom of the list were all European, with Switzerland, the home country, placing near the middle of the 152 jurisdictions ranked. United States scored better, even better than Canada. Transparency International has a corruption map where Canada fairs better than the US. This is interesting to note since TI’s data was included in the BIoG’s sources. Effectively, BIoG AML Index is an aggregate assessment of other research.

This is a troubling way to look at these rankings. All of BIoG’s sources are also aggregated assessment of other research. This is to say, there are multiple layers of laziness going on here. There are a few true research going on where people are put on the ground or required review of laws on the books and effectiveness of enforcement, and then there are a few that are simply taking the conclusions of that research and repackaging it with their own ranking methodology.

Oddly, this is the same kind of trap compliance departments can fall prey to when trying to come up with risk ratings on qualitative jurisdictional attributes using these think tank assessments. What is hidden is that there are some that are getting weighed more heavily than is otherwise apparent. A good analogy would be a patient recovering from surgery who is taking Vicodin and Tylenol, not realizing that Vicodin includes the the active ingredients of Tylenol within it – that’s why Vicodin labels warn people not to take Tylenol or acetaminophen, the active ingredient in Tylenol. The patient is accidentally taking a large dose of Tylenol than intended.

Taking a closer look at weighting of the source assessments, BIoG mentions issues regarding weighting but does not actually describe how the assessments were weighted. This makes it impossible for a compliance officer to undo undesirable aspects of this index.

Missing data section reveals that there was a minimum amount of data that was required to be ranked. This is helpful, but when I downloaded the spreadsheet, I expected the data. Instead what I found was a historical rankings on the BIoG AML Index. This is not helpful, since, a compliance officer is likely going to have to score the AML risk of jurisdictions not in the rankings.

The conclusion is this: BIoG’s AML Index can only be used to make a compliance department look better, but it doesn’t actually help compliance departments to be better because it does not add any value. No compliance officer should being using this index alone or in combination of other sources because this index will distort the actual research done by the other sources. While BIoG’s index is worthless, the index provides one thing of great value: its sources. It has curated a very good list of sources, which an compliance officer can use to educate himself on risks in various jurisdictions.


How does your firm score AML risk?

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. 

FinCEN defines dealers/retailers of precious metals, precious stones, jewels or other money substitutes


Dealers and certain retailers engaging in the purchase and sale of precious metals, precious stones, or jewels are financial institutions under FinCEN regulations. FinCEN defines a dealer as “a person engaged within the United States as a business in the purchase and sale of covered goods and who, during the prior calendar or tax year (i) purchased more than $50,000 in covered goods; and (ii) received more than $50,000 gross proceeds from the sale of covered goods.” 11 FinCEN includes in the definition of “dealer” those persons “… engaged within the United States in the business of sales primarily to the public of covered goods… who during the prior calendar or tax year… purchased more than $50,000 in covered goods from persons other than dealers or other retailers (such as members of the general public or foreign sources of supply.”12 The term “covered goods” includes precious metals as listed in 31 CFR § 1027.100(d). Based on your letter, and subject to the monetary threshold and type of supplier considerations explained above, the purchases and sales the Company entered into on its own account would make the Company a dealer in precious metals, and therefore a financial institution subject to FinCEN regulations.

When acting as either a money transmitter or a dealer in precious metals, precious stones, or jewels, the Company must assess the money laundering risk involved in its non-exempt transactions, and implement an anti-money laundering program to mitigate such risk. In addition, the Company must comply with the recordkeeping, reporting, and transaction monitoring requirements under FinCEN regulations. Examples of such requirements include the filing of reports relating to currency in excess of $10,000 received in a trade or business (31 CFR § 1027.330) whenever applicable, general recordkeeping maintenance (31 CFR § 1027.410), and recordkeeping related to the sale of negotiable instruments (31 CFR § 1010.415). Furthermore, to the extent that any of the Company’s transactions constitute a “transmittal of funds” (31 CFR § 1010.100(ddd)) under FinCEN’s regulations, then the Company must also comply with the “Funds Transfer Rule” (31 CFR § 1010.410(e)) and the “Funds Travel Rule” (31 CFR § 1010.410(f)). Additionally, as a money transmitter, the Company must register with FinCEN within 180 days of starting to engage in convertible virtual currency transactions as an exchanger (31 CFR § 1022.380).

Do you agree with this inclusive definition of dealers/retailers as well as precious metals, precious stones, jewels or other money substitutes?

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.


Money Laundering In London’s Eyes

Money Laundering through real estate in London is in focus. NPR is reporting that about $200 Billion in real estate is owned by offshore corporations. Offshore corporations could be owned by a complex web of owners, ultimately owned by criminals. With foreign money feeding the real estate markets in major global cities like London and New York, law enforcement is bounding to investigate the compliance procedures taken to ensure the prevention of money laundering through real estate in these markets.

Will Standard Charters’ compliance leadership changes make a difference?

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. 

ComplyTech: Semagix


Semagix is a technology company that focuses on AML, Financial Crimes, KYC and EDD. The company name is a merger of semantic and magics. Semagix focuses on semantic search of the web with internal systems to build profiles on transactors through a financial institution’s systems. The company bought the AML technology by merging with SearchSpace in 2007.


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.


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. 


BitCoin Enthusiasts Celebrate Regulation

from Bloomberg
Benjamin Lawsky, Superintendent of New York Financial Services

Last month, New York Department of Financial Services announced that it will start regulating digital currencies.

Normally, people groan at the news of more regulation. However, digital currencies are on the fringe and seek legitimization. Being regulated is a clear sign of impact.

BitCoin enthusiasts mostly cheered on the news, even though for many, mainstream regulation and economy is something they oppose.

Wall Street is on the fence about this. The banks are given another product they can trade, but at the cost of possible loss of control in that market. Banks sit as members of the Federal Reserve Banks, making them part of the money supply. Digital currencies are decentralized and if there is a center of power for them, it would be Silicon Valley.

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 Money Laundering: How criminals got paid and got away.


Colombian Prostitution And AML

Here’s a difficult area to investigate: money laundering from Colombian prostitution.

Secret Service Prostitution Scandal (from IB Times)

It is difficult for the usual reasons: cash transactions, foreign jurisdiction, lax law enforcement, violent business rings… And then there is the US government. Well, the government agents who are their clients.

That’s right. If you’ve been following the news, various Federal agencies have faced issues with their agents paying for sex while on business trips in Colombia.

Disclosure: I am not against prostitution as an isolated concept. But the reality is that prostitution in most parts of the world primarily takes place because of poor economic conditions and violent human traffickers. Often, prostitution rings are run by the same people who run other illegal/illicit businesses, like drug cartels. So, the reality is that even for who are in favor of legal prostitution, or at least not opposed to it, should be against allowing prostitution to take place.

Chuck Rosenberg has been named to replace retiring head of the Drug Enforcement Agency Michelle Leonhart. Leonhart’s career is prematurely ending because of the Colombian Prostitution Scandal.

Scandal aside, this means that DEA agents were funding the very drug cartels they’ve been fighting. We should look at the opportunity this brings, however. The downside has already been done and, let’s hope, it doesn’t happen again, although we all know that it will happen again, if not at the DEA then at some other place. The opportunity is that we have a chance to follow the money our own has contributed to the cartels. And I really hope we are doing this. This is really the only benefit we get out of this.

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.


Many Banks Cut Clients Over Money Laundering Fears

(credit: Robert Kaplinsky)

Many banks have cut clients over money laundering fears. With fewer clients, low interest rates and low volatility, there are less ways for financial institutions with multiple lines of businesses can earn money. Bank of America, Citigroup and JPMorgan Chase combined cut 50,000 jobs in 2014. Industry wide, some have reported 80,000 cuts. Profits are up at banks because of the job cuts, not because of improving economy.

One area that hasn’t seen a decline in headcount is Compliance. All compliance-related areas of the bank (Compliance, Legal, Risk, Controls, Audit) have all seen headcount increases. For many of the areas, skills from other areas of the bank is quite transferable. Knowledge as well.

But knowledge of AML is particularly lax. And, sadly, many of the top decision makers are not versed enough in AML issues to figure out a way to restructure the organization to keep clients. So, the only thing they can do is to cut clients.

While this might be good for the domestic banking industry, on the long run, this will be bad when these firms are trying to compete with their large Chinese competitors. The five largest Chinese banks have an edge on AML programs, should they choose to implement it: government support.

Because Chinese banks are essentially government owned, AML programs in these institutions can implement government level standards even with bank secrecy laws. This integrated approach is at the risk of bank secrecy laws, but it also means that even without knowledge of AML, top decision makers can decide to keep all clients and adjust AML programs as the government sees fit.

This issue has been playing out the last few years because the US has been seeking ways to punish Chinese bank clients through their correspondent accounts for revenue from counterfeit products they sell. The measure should really be tied to counterfeit products that are made, not those that are sold, but that’s especially difficult since the US government has no jurisdiction in production abroad. But US laws allow extra-jurisdictional reach on banking when correspondent bank accounts are in the US. But, of course, Chinese banks are against this. So is the Chinese government. On the other hand, the Chinese government doesn’t want their economy to be so heavily depended on counterfeit products. So, the conundrum is for the Chinese government. The US is enforcing the type of laws they would like to implement, but the punishment will be doled out in the US. If the Chinese government also pursues this, the punishment will be on both sides. And the Chinese government also has to look out for the short term economy, which is heavily depended on counterfeits.

So, at least US and European banks can breath one sigh a relief: the clients they are dropping must find banks within the western government jurisdictions because shifting the economics of counterfeit financing and transactions would provide more leverage to implement more stringent AML programs on the institutions that currently do not have such programs.

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.


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.