Another Busy Week in Financial Crime Prevention

This week the US Department of Justice indicated that it will begin directing prosecutors to “consider requiring” certification at the end of an enforcement action settlement that the “the company’s compliance program is reasonably designed and implemented to detect and prevent violations of the law and is functioning effectively.” Also this week, Chairwoman Maxine Waters of the US House Financial Services Committee issued a letter to trade associations representing numerous US businesses requesting detailed information on the actions that America’s financial institutions and businesses have taken to end their relationships and engagements in Russia and with businesses that support the Russian government. John and Elliot discuss the implications for CEOs and CCOs of the certification idea and how the trade associations may respond to Chairwoman Water’s request from information.

Another Busy Week in Financial Crime Prevention TRANSCRIPT

Elliot Berman: Hi, John, how are you this week?

John Byrne: Good, Elliot. How are you doing?

Elliot Berman: I'm okay. We've had three days of rain here in the Midwest, but it's okay. We could use the water, actually. We had a light snow winter. So, a couple of things this week, as opposed to just focusing on one. I know you were at the ACAMS AML and Financial Crime Conference in Hollywood, Florida.

And, you mentioned earlier when we were speaking that you heard an interesting announcement, if you will, from DOJ. So what was that about?

John Byrne: Yeah, it was interesting because there wasn't any preview of this, you know, a lot of times when agencies speak, you sort of know in advance thematically, what they're going to cover, maybe not the specifics. But the department of justice spoke on Tuesday at the conference. Kenneth Polite from the criminal division is head of DOJ's criminal division. [He] talked about a whole series of things. You know the importance of working with the AML community and the financial sector. Really positive stuff.

But he also said that the division is going to direct prosecutors, and he put it to consider requiring that Chief Compliance Officers. CEO's certified at the end of a settlement about the company's compliance program that it is quote, "reasonably designed and implemented to detect and prevent violations of law."

So, you know, that, it would sort of mitigate, during the settlement, some of the fines and penalties outs, that's the theory at least, no specifics yet. Other than what I just told you. It is not simply limited to financial institutions. You know, it's anything under the purview of the criminal division, which is broad, as you know, but I think that what was not funny, but interesting to watch is that when the panel came up right after that, they were asked to comment on it. And of course, they said, what you and I would say, well, [we] want to see the specifics. Obviously, it sounds very close to what New York did in section 504 from a few years ago. 

Elliot Berman: Right. 

John Byrne: And I remember when we were sort of dealing with that issue. So the logical thing that you and I, as lawyers, would say is why would you sign something like that when there's pretty clearly no way that you can, you know, ensure that the compliance program was, as they say, met all its obligations and that sort of thing.

And so, I think that's obviously more than problematic. I think it comes from a sincere place. I think some other folks said, but really interesting, again, not directed necessarily at our community, but it would clearly impact our community. I've always believed, and I know that you've been involved in similar policy and other debates. Where it's basically if the compliance office, at a minimum, isn't at the table is that senior management has to sign something to certify that the program is run effectively. I would never advise them to do that. So even if you have decision-making authority, it's problematic. So I thought that was really interesting. I won't say curveball because it's good.

I think, in general, that the DOJ is going to be focusing on white-collar crime again. But, yeah, I think the audience was clearly taken aback.

Elliot Berman: Yeah. It's interesting. There are other certification regimes. [The] 504 is a good example. You know, financial statements and other related things for the SEC are now certified and have been for quite some time now by the CEO and the CFO. And what many of those types of regimes tend to spawn internally is a cast, an upward cascading set of certifications, where, you know, people around the organization who have something to do with what ultimately has to be certified at the top of the show. There are internal certifications.

Yes. We've actually done a diligence on this system or this function or this requirement. And we're certifying to your top of the shop certifier, you know, in this case, the Chief Compliance Officer, that everything's doing what it's supposed to do. That's the way to give someone at the top of the shop comfort. But, you know, it's not something that you can fall back on. You can't fall back to the government if your certification tends not to end up being fully effective. So obviously, more to come.

John Byrne: Right. Yeah. The good news is I think those of us in our community, anything that emphasizes the importance of compliance operations and results in additional resources, not just for the personal interest of companies like ours that provide that.

But more importantly, we've always believed that the compliance officers need support, need resources, and need to have decision-making power. So obviously, we'll see how that plays out. So, that was one thing. 

The other thing that we saw today is that Chairman Waters, for the House Financial Services Committee, sent a letter again on the 24th.

And this will obviously post tomorrow. [She] sent a letter to various trade associations. That represents the financial and the commercial industry asking for specific information on what those institutions have done to end their relationships, their disinvestment, if you will, with Russia.

So, this is in part just the response to obviously the ongoing, terrible things that are happening in Ukraine. But President Zelenskyy spoke to Congress; I believe earlier this week. And in reaction to that, Chairman Waters said it was really important. She knows that a lot of companies are doing some things, but having more specificity would help Congress in terms of maybe additional legislation support.

So I think that that was it. And some of the things that the committee is interested in, the letter is on their website, is action and undertaken you know by the affected industry group or the industry members that have decided to exit and wind-down businesses, including both financial relationships and general relationships, since February 24th. The identity of the companies that continue to engage might be a tougher one. But we'll see with Russia and Russia-based firms. And what are their plans to wind down and the reasons why, or why they plan to continue, like what's happening there.

And then, you know, how are you compliant? With us and allied sanctions, obviously, the last one also, like we just talked about a little problematic to put in a letter how you're complying. Because if you were asking me that, I would certainly say I'm following the EU sanctions or the OFAC sanctions, or what have you.

So I think there is some direction on how to respond to this. So there's some guidance, but that's generally what the committee is asking for. And again, it makes sense because in order to make some potential policy changes if necessary or legislative changes to get a sense of where we are.

Elliot Berman: Yeah, it'll be interesting to see. I assume that some of the responses that she and the committee received will be, ultimately become public. So it'd be very interesting to see what those statements look like.

John Byrne: Right. Yeah. And you know, again, we know that'll happen. That does happen. That's why I think I understand the request, but there has to be sort of also recognition on the part of Congress.

The response to the request has to be carefully crafted because of that. I mean, I think that's obvious, and you also don't want to detail your plans so that these companies can evade them. I don't mean the US companies, but the entities dealing with Russia. Somehow can it impact whatever, I mean, smart people, unfortunately, could figure some of this out, and we'll see, we'll see the responses.

I think they're asking for this information over the course of the next week or so. So we'll see what happens, but anyway, a lot more to come. That same statement also includes a number of the legislative activities that have occurred in the past couple of weeks. And some of the bills that have passed committee, dealing with oligarchs, dealing with sanctions, debt, repayment, how to isolate government officials.

There's a lot there. As we hope everybody's doing, you know, stay current check the government website, congressional websites, agency websites, FATF. You know, all the logical places you'd go to stay on top of this.

Elliot Berman: It is a dynamic situation, and I don't think it's going to come down in the near term.

John Byrne: And what do we have coming up? I'm not sure when we're going to run this, but I'm going to have a videocast. Well, not a live videocast, but we're going to, we're going to record it and run it sometime in the future on a continuing challenge. And that's on antiquity smuggling.

I have three excellent experts that I'm going to sit down with tomorrow and talk to them about the financial investigative aspect of that. So we will, you know, post that at some point, obviously, the chat with them. And we're always looking for more ideas from our listeners. Who else could we be interviewing? And what other topics do you want to hear?

Elliot Berman: Yes. That's true. And, so continue to watch our webpage for additional content. We're busy and, with lots of it. Today we had a webinar on high-risk customers from a global perspective, and you'll start to see pieces of that webinar posting in the next several weeks.

So, look for that, always an issue that we have to deal with, particularly in the light of the rush of new sanctions. You know, now has an additional dimension.

John Byrne: Right. Well, Elliot, thanks for chatting with me today. And again, thanks to everybody for listening. You can always subscribe to this wherever you get your podcast. And write a review, give us some input. We really appreciate it.

Elliot Berman: All right, John, have a good week.

John Byrne: You too. Take care.

Elliot Berman: Yep. Bye-bye.