Individuals and businesses that work in the financial sector may be subject to a wide range of statutes at the federal and state levels. These laws can impose both civil and criminal penalties for actions ranging from overt malfeasance to failure to keep up with record-keeping requirements. They have national reach, meaning they could apply to someone on Wall Street as well as individuals in Texas. Criminal prosecutions for alleged financial crimes often require the government to meet a difficult burden of proof regarding a defendant’s state of mind, such as intentional or willful action. Regulators sometimes pursue civil actions, with their lower burden of proof, instead of criminal ones. They may also offer incentives, of a sort, to potential defendants to encourage them to cooperate with investigations. The U.S. Department of Justice (DOJ) recently announced a settlement with a financial company accused of violating the Banking Secrecy Act (BSA). The company’s “extensive remedial measures” reportedly led the DOJ to enter into a non-prosecution agreement, resulting in penalties that were possibly less than what the company might have faced had the case gone to court.
The BSA effectively enlists certain businesses to assist in federal law enforcement, tax, regulatory, and counter-terrorism efforts. See 31 U.S.C. § 5311. It primarily applies to “financial institutions,” which it defines very broadly to include federally insured banks, securities brokers, investment banks, insurance companies, finance companies, vehicle dealers, casinos, and other businesses “whose cash transactions have a high degree of usefulness in criminal, tax, or regulatory matters.” Id. at § 5312(a)(2). Money laundering is an area of particular focus, since financial institutions are often an essential component of that process. The statute requires financial institutions “to report any suspicious transaction relevant to a possible violation of law or regulation.” Id. at § 5318(g). This is commonly known as a “suspicious activity report” (SAR).
The company involved in the DOJ investigation operates a money services business that allows customers to send money abroad. This fits within the BSA’s definition of a “financial institution,” since it involves the “transmission of funds.” Id. at § 5312(a)(2)(R). The DOJ alleged that the company failed to maintain an “anti-money laundering compliance program” (AML) in accordance with the BSA. It claimed that the company processed over 30 million “remittance transactions,” totaling over $8.8 billion, between the U.S. and Mexico from 2007 to about 2012. The company’s own monitoring system, according to the DOJ, alerted on more than 18,000 transactions during that time. The company allegedly failed to investigate all but about 10 of those alerts, and it only submitted nine SARs. The DOJ maintained that these failures were “willful.”