American Express Bank International learned an expensive lesson when it agreed on Aug. 6 to pay a stiff penalty to the federal government after admitting that it failed to install and maintain anti-money-laundering software at its Miami office.
The bank, which has about $1 billion in assets, must fork over a whopping $65 million, including $55 million in restitution and $10 million in penalties to the Department of the Treasury, as a result of negligence in its banking and compliance practices.
A criminal information affidavit filed in U.S. District Court in Miami charged the bank with a single count of failing to maintain an effective anti-money-laundering program, and Amex decided not to fight the charge and to take the fine instead.
The investigation raises obvious questions about why the banks executives failed to address the money-laundering problems earlier. The transgressions apparently had been happening for several years, according to the federal affidavit.
During a lengthy investigation, Department of Justice investigators found a number of American Express bank accounts that they believed were used to launder about $55 million in payments for distributors in the South American black market. Money brokers, from apparently legitimate South American businesses using offshore shell companies, exchanged U.S. dollars from those accounts for currency from countries such as Venezuela, Colombia, and Brazil to make the payments.
Undercover law enforcement agents working as go-betweens for Colombian drug traffickers discovered the money laundering.
The banks problem was that it had money-laundering controls and policies in place, but apparently the overseers administering them werent enforcing them.
“We have had an anti-money-laundering compliance program in place for many years,” Susan Aftran, vice president of communication for American Express Bank International told eWEEK.
“The program includes policies and procedures, training, and independent audit functions, as well as designated AML [anti-money-laundering] compliance officers. We have enhanced the program in recent months and intend to continue to enhance it in the future.”
But Jacob Jegher, a senior analyst at Celent, a Boston-based financial research and consulting firm, said theres really no excuse for something like this.
“Like anything else in banking, you have to have solid compliance controls and policies in place at all times for regulators and auditors,” Jegher said. “And you have to have the right people running [the program].
“This is just another example of that fact that if you get lax on the rules and dont pay attention, youre going to eventually get burned. Its not that complicated.”
American Express Bank International already has begun to improve its compliance program, Aftran told eWEEK. “We have made a commitment to continuing [to improve] this work,” Aftran said.
According to Aftran, the bank is now:
- contracting with compliance experts to conduct a comprehensive review of existing programs;
- improving compliance policies, procedures, and coordination among business units;
- improving management oversight and internal controls;
- enhancing the staffing of the compliance department; and
- better managing the reporting of suspicious activities.
In addition, Aftran released this statement from the bank:
“We have cooperated fully with the government and understand the need for absolute vigilance in our efforts to protect against money laundering. We have already made substantial efforts to augment and strengthen our compliance programs and will continue to do so. We are firmly committed to the agreements we have reached and to conducting our business with the highest standards of integrity, compliance and control.”
The bank will likely be looking at new anti-laundering software, Aftran said. Companies in this field include Accuity, ChoicePoint/Bridger Insight, Experian/Americas Software, Mantas (now owned by Oracle), Metavante/Prime Associates, NetEconomy, Northland Solutions, SAS Institute, and Wolters Kluwer Financial Services/PCi.
The AML software market is burgeoning as more and more people use online banking services, according to Neil Katkov an analyst based in Tokyo. Spending on AML software globally will increase from $335.4 million to $375 million by 2009, a compound annual growth rate of 5.9 percent, according to a 2007 Katkov report.
Such software looks for inconsistencies in banking patterns and issues detailed reports in real time.
For example, Oracle Mantas products include the money-laundering tool Behavior Detection Platform, which can also be used in helping to identify terrorists, who are well known for using money laundering techniques around the world.
Most AML software offers visualization tools, such as network diagrams to depict account relationships; peer profiling, network analysis, risk scoring and other analytic approaches currently being emphasized by regulators. The software also offers enhanced case management functionality with rich workflow and investigation features along with “compliance dashboards,” to integrate output from multiple regional and line of business systems, including the integration of AML with anti-fraud and other compliance systems.
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