New York Proposes AML Certification by Chief Compliance Officers Creating Potential Personal Criminal Liability
28th March 2016
The New York State Department of Financial Services (“NYSDFS”) has proposed a new rule in their anti-terrorism and anti-money laundering regulation that would subject chief compliance officers of New York financial firms to potential personal criminal liability.
NYDFS over the last four years has conducted investigations into financial institution compliance of Bank Secrecy Act/Anti‐Money Laundering laws and regulations (“BSA/AML”) and Office of Foreign Assets Control (“OFAC”) requirements implementing federal economic and trade sanctions. As a result of these investigations, NYSDFS found that financial institution transaction monitoring and filtering programs had serious shortcomings and that such shortcomings were attributable to, among other things, the lack of governance, oversight and accountability at the financial firms’ senior levels.
Although the proposed regulation does not change existing compliance requirements currently imposed on financial institutions, it does include a new requirement that was modeled on Sarbanes-Oxley where the chief compliance officer or functional equivalent of the financial institution is mandated to annually certify that, to the best of his or her knowledge, that he or she has reviewed, or caused to be reviewed, the financial institution’s transaction monitoring program and the OFAC watch lists filtering program and that the programs comply with all the requirements set forth in the rule. The rule also provides that a senior compliance officer who files an incorrect or false annual certification may be subject to criminal penalties for such filing. NYSDFS’s intent is that the certification requirement will cause compliance officers to proactively ensure that their financial institution is in compliance with the requirements.
OFAC administers and enforces economic and trade sanctions based on US foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers and other restricted persons appearing on government sanctions list or “watchlists”.
New York’s proposed regulation, requires financial institutions to maintain a watchlist program that finds and prevents illicit transactions before they are executed – in real time – as opposed to the risk-based batch approach provided for under the federal standards. The New York-specific standard is a non-risk based standard and goes above and beyond what is mandated by federal standards. The proposed regulation does not mandate the use of any particular system or technology, but does mandate that the system or technology used must be adequate to capture prohibited transactions.