A member’s perspective on the evolution of compliance

I was enjoying an iced tea at my favorite Irish bar the other day experiencing flash-backs of how all of this money laundering stuff (a legal term) came to be.  I thought that some of you may have an interest in one guy’s historical perspective of the current state of compliance.

In 1979 South Florida was in the midst of the infamous Miami Vice era.  Bags and boxes of drug cash were being carted into banks and deposited into non-interest bearing checking accounts.  When banks were asked about customer transaction reports (CTRs), the common response was “we don’t file no stinking CTRs”.  As a matter of fact, many banks did not have blank CTRs and openly admitted not knowing such forms or requirements existed.  A few did file CTRs on large cash transactions, but in the names of cartoon characters and dead Hollywood actors.  One bank openly stated to me “we file all CTRs as required”.  I asked them how they did that, since we had no record of this institution filing CTRs and the response was “we file them right here in that file cabinet”.  Of course, the “compliance officer” at that time was the person who screwed up the previous week and was sentenced to one week as compliance officer.

Well, with accounts ranging from $250 to $500 million dollars per year in cash deposits and no Bank Secrecy Act (BSA) compliance even considered, there were cases and careers to be made. During the next several years, Operation Greenback was extraordinarily successful. 

By 1982, the success of BSA investigations led to the launching of the Organized Crime Drug Enforcement Task Force program and Congressional hearings on the financial magnitude of organized criminal activity.  This always amazed me since financial investigations have a long history in the U.S. for being successful against the Mafia (just ask Al Capone).  The result was the passage of the Money Laundering Control Act of 1986 implementing the first national money laundering law in the world.

The investigative concept of Operation Greenback was adopted nationwide with great success.  In the mid-1980’s I met a couple of young fellows, one from the ABA (John Byrne), one from the Federal Reserve (Rick Small) and a freelancer (Phil Gay) at the American Banker’s Association Graduate Compliance School at the University of Oklahoma.  During the next several years, the role of banks in dealing with drug money became an important element in compliance training programs. 

By 1990, banks throughout the U.S. reached an all time high for compliance and the global perspective on money laundering was in full swing with the launching of the Financial Action Task Force (FATF) and the famous 40 recommendations.

Many countries followed the 1986 Money Laundering Control Act and the FATF Recommendations with compliance and AML laws, rules and regulations of their own.  Australia became the first country to form what is now called a Financial Intelligence Unit (AUSTRAC).  Financial Crimes Enforcement Network (FinCEN) came later.

Then the horrific events of September 11, 2001 brought about an entirely new universe of anti-money laundering initiatives. Terrorist financing was the new undefined term everyone had to deal with.  Charities never before on anyone’s radar screen, suddenly became high risk.

We saw the rapid passage of the USA Patriot Act, implementation of new special recommendations by the FATF and nations previously relaxed in their approach to AML regimes, pass proceeds of crime legislation and create active Financial Intelligence Units (FIUs).

Financial institutions sought experienced compliance officers, but they were far and few between.  The compliance function was now a hot-button.

Insurance companies, money services businesses, jewelers and an expanding array of financial and non-financial trades and businesses were pulled into the AML whirlwind.

International fraud schemes, staggering financial levels of official corruption and other organized criminal activities began to fall to money laundering and proceeds of crime statutes around the world.

Banks and non-bank financial institutions were struck with extraordinary fines, penalties and lawsuits.  There appears to be no end in sight.

This brings us up to date and it is time for a refill (iced tea, of course).

Contributed by:
Mike McDonald, CAMS
Michael McDonald & Associates, Inc.
www.mma-moneylaundering.com