As enforcement trends move toward holding individuals accountable, casino compliance officers must be ever more vigilant and proactive in keeping their anti-money laundering (AML) programs in robust shape to mitigate risks for both themselves and their companies, a panel of U.S. regulatory and enforcement experts said Tuesday afternoon at the Global Gaming Expo.
Sharon Levin, a former Justice Department official now in private practice, explained that because of a new DoJ paradigm known as the “Yates Memo”- which was implemented about a year ago – the focus of criminal and civil enforcement actions against corporations within the agency has fundamentally shifted from the companies themselves to individuals within companies.
The shift comes on the heels of hundreds of billions of dollars in enforcement actions and fines levied against large banks over the past five years for their respective roles in the financial crisis, and sanctions against violations and other infractions. While these institutions have essentially become piñatas that spew out money each time they are whacked by a government agency, no individual has been criminally prosecuted for his or her role in the activities.
Growing outcry from the public and a ramp-up in populist rhetoric from key figures like senators Bernie Sanders and Elizabeth Warren over a perceived lack of justice has driven the shift in sentiment within regulatory and enforcement agencies to prioritize individual liability.
Levin said the logic is that “corporations don’t commit crimes, individuals commit crimes. If there was a crime, there was a person responsible,” and that the DoJ must now investigate who was responsible for wrongdoing.
While the Yates Memo applies to just the DoJ, there is a tendency for government agencies and even self-regulatory bodies to play off one another in regard to en vogue enforcement actions and trends.
To translate, slapping corporations with fines, no matter how eye-popping they may be, isn’t going to cut the mustard anymore.
As a timely example, Levin pointed to the fate of Wells Fargo chief executive John Stump, who was ripped apart by Warren and others during a Senate Banking Committee hearing last week on allegations that his employees had opened millions of unauthorized accounts in order to meet very demanding sales targets. In an attempt to control the damage, the Wells Fargo board this week announced it is stripping Stumpf of $41 million worth of stock-based compensation.
The government has fined Wells Fargo, the nation’s second-largest bank, $185 million to date over the matter. Stumpf’s situation – he will testify before Congress again next week – illustrates the vigor with which individuals are now bearing the blame for company-wide problems.
The principle of personal liability underlying the Yates Rule isn’t in itself a new phenomenon, Levin added, as the DoJ’s focus has always been on prosecuting individuals.
But in practice, there are some key differentiations.
The biggest is that for a corporation to get credit for cooperating with prosecutors, it must provide all relevant facts pertaining to the individuals involved in the wrongdoing, whereas previously if a company provided some facts, it would receive some credit for cooperation. Now, it is an all or nothing deal Companies will no longer be allowed to negotiate for a waiver of liability for individuals.
Most significantly, Levin emphasized, is that “a case against a corporation cannot be resolved without a game plan for going against individuals. There needs to be a clear plan going forward.”
The most notable recent AML case in which individuals were held personally liable involved MoneyGram, in which chief compliance officer Thomas Haider was fined $1 million for his role in the company’s control failures. Haider tried to get the case dismissed on the grounds that the Bank Secrecy Act – a foundational AMl statute – doesn’t allow such actions against individuals, but that argument was rejected by a Minnesota district court.
In another case, Raymond James was fined $17 million by FINRA, a self-regulatory body, for its deficient AML controls. What’s notable about the case is that a mid-level compliance officer was held responsible and suspended for three months and fined $25,000, despite suggestions that many of the decisions were being made at a higher level.
So how can casino industry compliance officers protect themselves and their firms? The consensus on the panel was clear that understanding one’s authority, one’s ability to make decisions, and one’s access to senior management to make more holistic changes is crucial.
If those pieces aren’t in place, a compliance officer must be willing to consider a pair of nuclear options.
“Be prepared to walk if you are not able to make changes,” said Ben Floyd, Senior Vice President of AML Compliance at Caesars Entertainment. “If you have the responsibility but not the authority, be prepared to leave your position if necessary.”
Alex Wilson, Deputy Chief of the Money Laundering and Asset Forfeiture Unit for the U.S. Attorney’s office in the Southern District of New York, said that reporting the matter to law enforcement – as uncomfortable as that may be, would help to clear an officer of future wrongdoing by establishing a motive to fix the problem.
“If you are a compliance officer at any level of an organization and believe that you are not maintaining an effective AML program, and you’ve reported that up and someone in any level of authority above you has said ‘No, you’re not allowed to fix it,’ at that point you have a decision to make,” Wilson said. “I think it is either be prepared to walk or you can report it to someone.”
“You can always go to local law enforcement or a local FBI field office and say ‘We are not maintaining an effective AML program and I’ve been told not to fix it,” he continued. “That would protect you in the future.”
