New York agency stepping up as anti-money laundering enforcer
The Trump administration’s deregulatory push has many speculating whether U.S. anti-money laundering (AML) and terrorist financing regulations are also in the crosshairs.
The general view is that Trump will keep AML regulations in place, or even strengthen them, to bolster his anti-terrorism platform, although the fateof less established regulations, such as FinCEN’s pilot geographic targeting order (GTO) focusing on cash purchases of real estate, is less certain.
However, while U.S. anti-money laundering regulations are primarily led by the federal government, states have never been preempted; moreover, they play an increasingly larger and complementary role in enforcing AML compliance that will likely persist, notwithstanding any changes at the federal level.
No state agency is more willing to take the lead in enforcing AML regulations than the New York State Department of Financial Services (NYSDFS). Not only does NYSDFS have authority over New York-chartered financial institutions, but, because New York is home to approximately 90 percent of foreign bank assets in the U.S., the NYSDFS regulates all of those foreign banks’ New York branches.
Gov. Andrew Cuomo’s (D-N.Y.) former chief of staff, Benjamin Lawsky, was the first official tasked to lead the agency and immediately became one of “Wall Street’s most dogged pursuers.”
NYSDFS has employed novel techniques to monitor compliance. It has bucked tradition by conducting surprise audits of regulated entities. The NYSDFS has also demoted banks’ self-reporting on filtering system effectiveness in favor of running transactions through its own filtering system.
In Lawsky’s first year on the job, NYSDFS imposed a $340 million fine on a foreign bank for money laundering violations, despite the federal settlement for the same claims being only $227 million. The next year, he obtained a $250 million penalty from a foreign bank for similar violations. In November 2014, NYSDFS announced that the banks would have to pay an additional $300 million and $315 million, respectively, for failing to comply with their respective settlements.
In 2014, New York’s financial regulator also began pushing for individual responsibility by urging one foreign bank to fire 13 culpable senior executives and traders and discipline 45 others. In fact, NYSDFS even forced one bank to move its U.S. Bank Secrecy Act (BSA)/AML compliance programs to New York in order for the compliance team to ensure adequate oversight.
NYSDFS shows no sign of slowing down now that Benjamin Lawsky has stepped down. Maria Tullo was confirmed to lead the agency in June 2016. Tullo was expected to show more leniency to banks given her experience as a former litigation partner at Paul Weiss, where she represented Citibank, among other clients.
Those expectations have so far proven false. By the end of 2016, Tullo oversaw AML enforcement actions against a Taiwanese bank (fined $185 million), a Chinese bank (fined $215 million) and an Italian bank (fined $235 million).
NYSDFS also adopted a final rule requiring New York-regulated financial institutions to bolster their AML programs and for board members or senior compliance officers to personally certify their programs.
This rule clearly indicates that the NYSDFS will likely continue to remain one of the most active institutions fighting money laundering and making sure that New York has a role to play with or without leadership from the current administration.