New York’s Proposed Anti-Money Laundering Regulations Could Send CCOs to Jail

To start with the obvious, helping terrorists and drug kingpins with their finances is bad. The US regulatory machine has been clamping down tighter on financial institutions who engage in this bad behavior. As the bad acts continue, the regulators keep tightening the regulatory requirements. The latest tightening of the screws comes from New York.

Governor Andrew M. Cuomo announced that New York is proposing a new anti-terrorism and anti-money laundering regulation that includes a requirement modeled on Sarbanes-Oxley that the chief compliance officer certify that their institutions has sufficient systems in place to detect, weed out, and prevent illicit transactions. That potentially opens the certifying officer to criminal charges if the certification is incorrect or false.

It’s hard to argue against anti-money laundering regulatory requirements. The regulator’s stock response is “Then you are in favor of financing terrorists.” Nobody is in favor of that. A few greedy financial executives have gone bad and that causes the rest to endure increasing scrutiny.

The key question is who is going to get caught up in these proposed regulations.

§504.3 Transaction Monitoring and Filtering Program Requirements.
(a) Each Regulated Institution shall maintain a Transaction Monitoring Program…

§ 504.2 Definitions.
(e)“Regulated Institutions” means all Bank Regulated Institutions and all Nonbank Regulated Institutions.

(b) “Bank Regulated Institutions” means all banks, trust companies, private bankers, savings banks, and savings and loan associations chartered pursuant to the New York Banking Law (the “Banking Law”) and all branches and agencies of foreign banking corporations licensed pursuant to the Banking Law to conduct banking operations in New York.

(d) “Nonbank Regulated Institutions” shall mean all check cashers and money transmitters licensed pursuant to the Banking Law.

That moves the regulatory requirements into an area I’m no longer familiar with. New York banking law licensing and charters is outside my scope of knowledge.

The regulations go on to require the Chief Compliance Officer or functional equivalent to file an annual certification.

[T]he undersigned hereby certifies that they have reviewed, or caused to be reviewed, the Transaction Monitoring Program and the Watch List Filtering Program (the “Programs”) of (name of Regulated Institution) as of ___________ (date of the Certification) for the year ended________(year for which certification is provided) and hereby certifies that the Transaction Monitoring and Filtering Program complies with all the requirements of Section 504.3.

This is most likely not applicable to most fund managers not associated with licensed banks. We still need to keep an eye on FinCEN who is working on a new anti-money laundering requirement for registered investment advisers.

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