Metropolitan New York Chapter of the Association of

Metropolitan New York Chapter of the Association of Certified Anti-Money Laundering Specialists: AML Developments and Trends – 2006, 2007 and Beyond Daniel Seikaly, Esquire Jerome Walker, Esquire New York, New York November 5, 2007 © 2007 Troutman Sanders LLP. All Rights Reserved. 1 1

Jerome Walker – Trends and Developments from the Commercial and Investment Banking Agency Community. A review of trends and developments in 2007 and 2006 in the commercial and investment banking agency community (e. g. , the Board of Governors of the Federal Reserve System and its district reserve banks (the “Federal Reserve”), the Comptroller of the Currency (the “OCC”), the Federal Deposit Insurance Corporation (the “FDIC’), state banking departments, the Securities and Exchange Commission (the “SEC”) and the Financial Industry Regulatory Authority (“FINRA”)), suggests greater Bank Secrecy Act/Anti-Money Laundering and Counter Terrorism challenges (“AML/CT Challenges”) in 2008 for commercial and investment banks . 2 2

Jerome Walker – Trends and Developments from the Commercial and Investment Banking Agency Community. Commercial banking agencies are now more likely to view certain deficiencies as “Program” deficiencies than before and impose a cease and desist order. See 12 U. S. C. 1818(s)(3). “Program” requirements include: 1. Provide for a system of internal controls to assure ongoing compliance; 2. Provide for independent testing for compliance to be conducted by bank personnel or by an outside party; 3. Designate an individual or individuals responsible for coordinating and monitoring day-to-day compliance; and 4. Provide training for appropriate personnel. While they are not strictly defined as “Program” requirements, suspicious activity reports (“SARs”) and customer identification programs (“CIPs”) are treated as seriously as “Program” requirements. 3 3

Jerome Walker – Trends and Developments from the Commercial and Investment Banking Agency Community. Two of the most valuable, but most difficult, ways to foresee and understand trends and developments are to track and review enforcement actions and changes to the Federal Financial Institutions Examination Council (“FFIEC”) Bank Secrecy Act/Anti. Money Laundering Examination Manual (2007) and its updates, (the “AML Manual”) www. ffiec. gov/pdf/bsa_aml_examination_manual 2007. pdf, www. occ. treas. gov/ftp/bulletin/2007 -29 a. pdf, Interagency Statement on the Enforcement of the Bank Secrecy Act/Anti-Money Laundering Requirements, http: //www. occ. treas. gov/ftp/bulletin/2007 -36 a. pdf and SEC Anti. Money Laundering Source Tool (January 1, 2007), http: //www. sec. gov/about/offices/ocie/amlsourcetool. htm 4 4

Jerome Walker – Trends and Developments from the Commercial and Investment Banking Agency Community. There are other ways, including reviewing supervisory material, reviewing public positions taken by the regulatory agency community and the Financial Crimes Enforcement Network (“Fin. CEN”) and sharing views with colleagues. However, other than reading the tea leaves regarding examiner preferences, enforcement actions and the AML Manual have the most significant impact on the thinking of AML/CT professionals. 5 5

Jerome Walker – AML/CT Enforcement Actions by the Federal Reserve in 2007 (American Express). During 2007 the Federal Reserve completed at least four AML/CT enforcement actions againstitutions it supervises: A. In the Matter of American Express Bank International, Miami, Florida, Docket No. 07 -017 -B-EC, Cease and Desist Order and Order of Assessment of Civil Money Penalty Issued Upon Consent (August 3, 2007), http: //www. federalreserve. gov/newsevents/press/enforcemen t/enf 20070806 a 1. pdf The Federal Reserve imposed a $20 million civil money penalty on this Edge Act Corporation based upon its private banking services to high net worth individuals in Latin America. The main problems related to offshore bearer share personal investment company accounts and “Black Market Peso Exchange” wire transfers. The action included a Look Back requirement. Enforcement actions were also imposed by Fin. CEN and the Department of Justice (“DOJ”). 6 6

Jerome Walker – AML/CT Enforcement Actions by the Federal Reserve in 2007 (Intesa Sanpaolo). B. Written Agreement by and among Intesa Sanpaolo S. p. A. , Turin, Italy, Intesa Sanpaolo S. p. A. , New York Branch, New York, Federal Reserve Bank of New York and New York State Banking Department, Docket Nos. 06 -030 -WA/RB-FB/06 -030 WA/RB-FBR (March 2, 2007), http: //www. federalreserve. gov/newsevents/press/enforcement/e nf 20070313 a 1. pdf The Federal Reserve Bank of New York (the “NY Fed”) and the New York State Banking Department (the “Banking Department”) entered into this agreement with Intesa Sanpaolo based upon its correspondent banking services to non-US banks, non-US branches and affiliates of Intesa Sanpaolo and its US Dollar funds transfer clearing activities. The agreement included a Look Back requirement. 7 7

Jerome Walker – AML/CT Enforcement Actions by the Federal Reserve in 2007 (Banco de la Nacion). C. Written Agreement by and among Banco de la Nacion Argentina, Buenos Aires, Argentina, Banco de la Nacion Argentina, New York Branch, New York, Federal Reserve Bank of New York and New York State Banking Department, Docket Nos. 06 -034 -WA/RB-FB/06 -034 -WS/RB-FBR (March 2, 2007), http: //www. federalreserve. gov/newsevents/press/enforcement/e nf 20070306 a 1. pdf The NY Fed and the Banking Department entered into this agreement with Banco de la Nacion based upon its correspondent banking services to non-US financial institutions, funds transfers, pouch activity, customer due diligence deficiencies and Office of Foreign Assets Control (“OFAC”) issues. The agreement included a Look Back requirement. 8 8

Jerome Walker – AML/CT Enforcement Actions by the Federal Reserve in 2007 (Sumitomo Mitsui). D. Written Agreement by and among Sumitomo Mitsui Banking Corporation, Tokyo, Japan, Sumitomo Mitsui Banking Corporation, New York Branch, New York, Federal Reserve Bank of New York and New York State Banking Department, Docket Nos. 06 -029 -WA/RB-FB/06 -029 -WA/RB-FBR (January 22, 2007), http: //www. federalreserve. gov/newsevents/press/enforcement/e nf 20070124 a 1. pdf The NY Fed and the Banking Department entered into this agreement with Sumitomo Mitsui Banking Corporation based upon its correspondent banking services to non-US financial institutions and US Dollar funds transfer clearing. The agreement included a Look Back requirement. 9 9

Jerome Walker – AML/CT Enforcement Actions by the Federal Reserve in 2006 (Habib Bank Limited). 2. During 2006 the Federal Reserve completed at least six AML/CT enforcement actions againstitutions it supervises: A. Written Agreement by and among Habib Bank Limited, Karachi, Pakistan, Habib Bank Limited, New York Branch, New York, Federal Reserve Bank of New York and New York State Banking Department, Docket Nos. 06 -027 -WA/RB-FB/06 -027 WA/RB-FBR (December 19, 2006), http: //www. federalreserve. gov/newsevents/press/enforcemen t/enf 20061221 a 1. pdf The NY Fed and the Banking Department entered into this agreement with Habib Bank Limited based upon its correspondent banking services to non-US financial institutions and US Dollar funds transfer clearing. The agreement included a Look Back requirement. 10 10

Jerome Walker – AML/CT Enforcement Actions by the Federal Reserve in 2006 (Mitsubishi UFJ). B. Written Agreement by and among Mitsubishi UFJ Financial Group, Inc. , Tokyo, Japan, The Bank of Tokyo-Mitsubishi UFJ, Ltd. , New York Branch, New York, Federal Reserve Bank of San Francisco, Federal Reserve Bank of New York and New York State Banking Department, Docket Nos. 06 -028 -WA/RB-FH/06 -028 WA/RB-FB/06 -028 -WA/RB-FBR (December 18, 2006), http: //www. federalreserve. gov/newsevents/press/enforcement/e nf 20061218 a 2. pdf The Federal Reserve Bank of San Francisco (the “SF Fed”), the NY Fed and the Banking Department entered into this agreement with The Bank of Tokyo-Mitsubishi UFJ based upon its correspondent banking services to non-US financial institutions and US Dollar funds transfer clearing. The agreement included a Look Back requirement. The Banking Department and the FDIC also imposed a cease and desist order on Bank of Tokyo-Mitsubishi UFJ Trust Company. 11 11

Jerome Walker – AML/CT Enforcement Actions by the Federal Reserve in 2006 (Banco Industrial de Venezuela). C. Written Agreement by and among Banco Industrial de Venezuela, C. A. , Caracas, Venezuela, Banco Industrial de Venezuela, C. A. , New York Agency, Banco Industrial de Venezuela, C. A. , Miami Agency, Federal Reserve Bank of Atlanta, Federal Reserve Bank of New York, New York State Banking Department and State of Florida, Office of Financial Regulation, Docket Nos. 06017 -WA/RB-FB/06 -017 -WA/RB-FA 1/06 -017 -WA/RB-FA 2 (July 5, 2006), http: //www. federalreserve. gov/newsevents/press/enforcement/e nf 20060714 a 1. pdf The Federal Reserve Bank of Atlanta (the “Atlanta Fed”), the NY Fed, the State of Florida, Office of Financial Regulation (the “Florida Banking Department”) and the Banking Department entered into this agreement with Banco Industrial de Venezuela based upon its customer due diligence, customer identification and other deficiencies, correspondent accounts and OFAC issues. The agreement did not include a Look Back requirement. 12 12

Jerome Walker – AML/CT Enforcement Actions by the Federal Reserve in 2006 (Texas State Bank). D. Written Agreement by and among Texas State Bank, Mc. Allen, Texas, Federal Reserve Bank of Dallas and Texas Department of Banking, Docket No. 06 -008 -WA/RB-SM (April 25, 2006), http: //www. federalreserve. gov/newsevents/press/enforcement/e nf 20060519 b 1. pdf The Federal Reserve Bank of Dallas (the “Dallas Fed”) and the Texas Department of Banking (the “Texas Banking Department”) entered into this agreement with Texas State Bank based upon its customer due diligence and other deficiencies. The agreement did not include a Look Back requirement. 13 13

Jerome Walker – AML/CT Enforcement Actions by the Federal Reserve in 2006 (The Bank of New York). E. Written Agreement by and among The Bank of New York, Federal Reserve Bank of New York and New York State Banking Department, Docket No. 06 -009 -WA/RB-SM (April 21, 2006), http: //www. federalreserve. gov/newsevents/press/enforcement/e nf 20060424 a 1. pdf The NY Fed and the Banking Department entered into this agreement with The Bank of New York based upon its deficiencies in the bank’s enhanced due diligence program in private banking and the role of the Audit Department in AML/CT. The agreement did not include a Look Back requirement. 14 14

Jerome Walker – AML/CT Enforcement Actions by the Federal Reserve in 2006 (Sella Holding Banca). F. Written Agreement by and among Sella Holding Banca, S. p. A. , Biella, Italy, Sella Holding Banca, S. p. A. , d/b/a Banca Sella, S. p. A. , Miami Agency, Miami, Florida, Federal Reserve Bank of Atlanta and State of Florida, Office of Financial Regulation, Docket Nos. 06 -003 WA/RB-FB/06 -003 -WA/RB-FA (April 12, 2006), http: //www. federalreserve. gov/newsevents/press/enforcement/e nf 20060424 d 1. pdf The Atlanta Fed and the Florida Banking Department entered into this agreement with Sella Holding Banca based upon its AML/CT policies and procedures, internal audit and information technology deficiencies. The agreement did not include a Look Back requirement. 15 15

Jerome Walker – AML/CT Enforcement Actions by the OCC in 2007 (The International Bank of Miami, N. A. ). 3. During 2007 the OCC completed at least five AML/CT enforcement actions againstitutions it supervises: A. In the Matter of The International Bank of Miami, National Association, Coral Gables, Florida, AA-EC-07 -58, Consent Order to a Civil Money Penalty and to Cease and Desist, 2007 -011 (February 12, 2007), http: //www. occ. treas. gov/FTP/EAs/ea 2007 -011. pdf The OCC imposed a $250, 000 civil money penalty on the bank based upon the OCC’s finding that: i. The bank’s records frequently did not identify adequately a legitimate business purpose for transactions or fully and accurately describe the nature and purpose of loans arranged by its capital markets group. Specifically, the loans were documented with vague purpose statements, including a description of use of loan proceeds as “working capital”. 16 16

Jerome Walker – AML/CT Enforcement Actions by the OCC in 2007 (The International Bank of Miami, N. A. ). ii. The bank did not maintain an adequate system of internal controls to monitor and report suspicious activities. iii. The bank did not adequately identify and monitor the accounts of politically exposed persons who conducted business with the bank. iv. The bank did not monitor the activity of loan accounts, including the receipt of payments, for unusual or suspicious activity. v. The Bank’s BSA training program did not adequately train employees to identify and report suspicious activities. The OCC did not require a Look Back. 17 17

Jerome Walker – AML/CT Enforcement Actions by the OCC in 2007 (Union Bank of California, N. A. ). B. In the Matter of Union Bank of California, N. A. , San Francisco, California, AA-EC-07 -58, Consent Order to a Civil Money Penalty and to Cease and Desist, 2007 -110 (September 14, 2007), http: //www. occ. treas. gov/FTP/EAs/ea 2007 -110. pdf The OCC imposed a $10 million civil money penalty on the bank based upon the OCC’s finding that: i. The bank failed adequately to monitor its casa de cambio (“CDC”) accounts for suspicious activity during a ten month period, and failed to identify suspicious activity that occurred in certain CDC accounts and to file hundreds of related SARs in a timely manner. The bank’s failure to monitor the CDC activity resulted in the movement of millions of dollars of suspected proceeds of drug sales through certain CDC accounts at the bank without detection or reporting of the suspicious transactions. 18 18

Jerome Walker – AML/CT Enforcement Actions by the OCC in 2007 (Union Bank of California, N. A. ). ii. The bank entered into a Memorandum of Understanding (“MOU”) with the OCC on March 23, 2005. The MOU required implementation of a bank-wide BSA compliance program, improved internal controls for monitoring high risk accounts and transactions, enhanced training and audit function, and enhanced due diligence procedures reasonably designed to detect and report instances of money laundering through certain private banking customer accounts. The MOU specifically required the bank to improve its processes for identifying and reporting suspicious transactions. The OCC determined that the bank did not comply with the MOU. 19 19

Jerome Walker – AML/CT Enforcement Actions by the OCC in 2007 (Union Bank of California, N. A. ). iii. The Financial Intelligence Unit (“FIU”) is the bank’s enterprisewide BSA compliance program for SAR processes. The Bank’s FIU was ineffective in detecting and reporting suspicious activity because of staff skill deficiencies and weak oversight, and it lacked adequate internal controls to detect and report suspicious activity. There was a serious breakdown in the Bank’s SAR processes on an organization-wide basis. iv. The bank's customer due diligence controls, particularly for existing customer profiles and across various lines of businesses, were insufficient to facilitate meaningful transaction analysis and an effective SAR process. The OCC did not require a Look Back. Enforcement actions were also imposed by Fin. CEN and DOJ. 20 20

Jerome Walker – AML/CT Enforcement Actions by the OCC in 2007 (Union Bank for Africa, New York Branch). C. In the Matter of United Bank for Africa Plc, New York Branch, New York, a Federal branch of United Bank for Africa Plc, Lagos, Nigeria AA-EC-07 -23, Consent Order for a Civil Money Penalty, 2007 -039 (May 2, 2007), http: //www. occ. treas. gov/FTP/EAs/ea 2007 -039. pdf The OCC imposed a $500, 000 civil money penalty on the branch based upon the OCC’s finding that: i. Suspicious activities occurred in two Branch customer accounts, including the account of a customer controlled by the former Chairman of the Bank. The activities in these accounts included suspected money laundering, insider abuse and advance payment fraud. These activities should have been apparent following inquiries received by the bank and the branch between 2000 and 2005 from Nigerian regulators and Nigerian and U. S. law enforcement related to activities occurring in the customer accounts. 21 21

Jerome Walker – AML/CT Enforcement Actions by the OCC in 2007 (Union Bank for Africa, New York Branch). ii. the Bank and the Branch recklessly engaged in unsafe or unsound banking practices by failing to establish and maintain internal controls and audit functions sufficient to ensure compliance with the Bank Secrecy Act. The OCC did not require a Look Back. The OCC also issued a cease and desist order against the bank based upon AML/CT violations. See http: //www. occ. treas. gov/FTP/EAs/ea 2007 -003. pdf, (2007 -003) (January 18, 2007). This very significant cease and desist order required major enhancements across the board to the bank’s AML/CT program, but did not include a Look Back requirement. 22 22

Jerome Walker – AML/CT Enforcement Actions by the OCC in 2007 (Citi Ka Wah Bank Limited). D. Agreement by and between Citic Ka Wah Bank Limited, New York and Alhambra, California and the Comptroller of the Currency, 2007 -007 (January 8, 2007), http: //www. occ. treas. gov/FTP/EAs/ea 2007 -007. pdf In this Formal Agreement, the OCC required: i. A Look Back covering AML/CT issues. ii. Significant enhancements to internal controls, including policies and procedures and staffing. iii. Significant enhancements to audit, training and suspicious activity reporting. iv. Enhancements to the Compliance Officer function, including reporting lines. 23 23

Jerome Walker – AML/CT Enforcement Actions by the OCC in 2007 (Commerce Bank/Harrisburg N. A. ). E. Agreement by and between Commerce Bank/Harrisburg National Association and the Comptroller of the Currency, 2007 -008 (January 29, 2007), http: //www. occ. treas. gov/FTP/EAs/ea 2007008. pdf In this Formal Agreement, which appeared to be based upon a safety and soundness exam, the OCC included several articles requiring enhancements to the bank’s AML/CT program. The OCC included a Look Back requirement. 24 24

Jerome Walker – AML/CT Enforcement Actions by the OCC in 2006 (Metropolitan Bank and Trust Company). 4. During 2006 the OCC completed at least 14 AML/CT enforcement actions againstitutions it supervises: A. In the Matter of Metropolitan Bank and Trust Company, New York Branch, New York, a Federal branch of Metropolitan Bank and Trust Company, Manila, Philippines, AA-EC-06 -12, Consent Order, 2006 -19 (March 24, 2006), http: //www. occ. treas. gov/FTP/EAs/ea 2006 -19. pdf The OCC imposed a $150, 000 civil money penalty on the bank based upon the OCC’s finding that: i. The branch failed to follow its policies and procedures for ensuring compliance with the Bank Secrecy Act. ii. The branch lacked adequate systems and controls to comply with the Bank Secrecy Act. iii. The branch failed to timely file SARs. 25 25

Jerome Walker – AML/CT Enforcement Actions by the OCC in 2006 (AMCORE Bank, N. A. ). B. In the Matter of AMCORE Bank, N. A. , Rockford, Illinois, Consent Order, 2006 -81, http: //www. occ. treas. gov/FTP/EAs/ea 200681. pdf (August 10, 2006) The OCC also issued a cease and desist order against the bank and required: i. Comprehensive enhancements to the bank’s AML/CT program, including significant enhancements to internal controls, policies and procedures, audit, training, SAR reporting, recordkeeping, the account opening procedures and other processes. ii. A Look Back. iii. Enhanced customer due diligence related to high risk accounts, including politically exposed persons. iv. Enhancements to the AML Compliance Officer function. 26 26

Jerome Walker – AML/CT Enforcement Actions by the OCC in 2006 (Bangkok Bank, New York Branch). C. In the Matter of Bangkok Bank Public Company Limited, New York, a Federal branch of Bangkok Bank Public Company Limited, Bangkok, Thailand, Consent Order, 2006 -29, http: //www. occ. treas. gov/FTP/EAs/ea 2006 -29. pdf (April 20, 2006) The OCC also issued a cease and desist order against the branch and required: i. The branch to stop processing wires, as intermediary or otherwise, unless it sets appropriate, OCC-approved parameters on the branch’s GIFTS system to enable the branch to identify potential suspicious activity and monitor transactions by originator and beneficiary. With respect to any wires processed by the branch, even when privacy laws of a jurisdiction outside the United States prevent the sharing or provision of information, the branch must conduct due diligence in order to assess the legitimacy of the transaction. 27 27

Jerome Walker – AML/CT Enforcement Actions by the OCC in 2006 (Bangkok Bank, New York Branch). ii. The branch to stop issuing, processing, or honoring demand drafts until its processes can effectively monitor, detect, and report suspicious activities in the issuance, processing, and payment of demand drafts. iii. Comprehensive enhancements to the bank’s AML/CT program, including significant enhancements to internal controls, policies and procedures, audit, training, SAR reporting, recordkeeping, the account opening procedures and other processes and to hire a Risk Manager. iv. A Look Back. v. The branch to enhance customer due diligence related to high risk accounts, including politically exposed persons, pouch activity, money service businesses, PUPID accounts, jewelry and precious metals accounts, offshore accounts and import/export company accounts. 28 28

Jerome Walker – AML/CT Enforcement Actions by the OCC in 2006 (Doha Bank, New York Branch). D. In the Matter of Doha Bank, New York, a Federal branch of Doha Bank, Doha, Qatar, Consent Order, 2006 -107, http: //www. occ. treas. gov/FTP/EAs/ea 2006 -107. pdf (September 19, 2006) The OCC also issued a cease and desist order against the branch and required: i. The branch to stop processing wires, as intermediary or otherwise, unless it develops or obtains an automated system for the processing of wires that helps the branch identify potentially suspicious activities and monitor and aggregate transactions by originator and beneficiary. With respect to any wires processed by the branch, even when privacy laws of a jurisdiction outside the United States prevent the sharing or provision of information, the branch must conduct due diligence in order to assess the legitimacy of the transaction. 29 29

Jerome Walker – AML/CT Enforcement Actions by the OCC in 2006 (Doha Bank, New York Branch). ii. The branch to stop issuing, processing, or honoring demand drafts until its processes can effectively monitor, detect, and report suspicious activities in the issuance, processing, and payment of demand drafts. iii. The branch to stop processing pouch items until its processes can effectively monitor, detect, and report suspicious activities in processing of pouch items. iv. Comprehensive enhancements to the bank’s AML/CT program, including significant enhancements to internal controls, policies and procedures, audit, training, SAR reporting, recordkeeping, the account opening procedures and other processes. 30 30

Jerome Walker – AML/CT Enforcement Actions by the OCC in 2006 (Doha Bank, New York Branch). v. A Look Back. vi. The branch to enhance customer due diligence related to high risk accounts, including politically exposed persons, pouch activity, money service businesses, jewelry and precious metals accounts, offshore accounts and import/export company accounts. vii. The branch to hire a Risk Manager. viii. The branch to enhance the AML Compliance Officer function. 31 31

Jerome Walker – AML/CT Enforcement Actions by the OCC in 2006 (First United Bank, N. A. ). E. In the Matter of First United Bank, N. A. , Englewood, Colorado, AA-WE-06 -82, Consent Order, 2006 -121, http: //www. occ. treas. gov/FTP/EAs/ea 2006 -121. pdf (October 5, 2006) The OCC also issued a cease and desist order against the bank as the result of its examination findings in a safety and soundness examination. The OCC required comprehensive enhancements to the bank’s AML/CT program, including significant enhancements to internal controls, AML Compliance Officer function, policies and procedures, audit, training, SAR reporting, customer due diligence requirements, recordkeeping, the account opening procedures and other processes. The OCC did not require a Look Back. 32 32

Jerome Walker – AML/CT Enforcement Actions by the OCC in 2006 (First. Merit Bank, N. A. ). F. In the Matter of First. Merit Bank, N. A. , Akron, Ohio, Consent Order, 2006 -134, http: //www. occ. treas. gov/FTP/EAs/ea 2006134. pdf (November 20, 2006) In this cease and desist order against the bank, the OCC required comprehensive enhancements to the bank’s AML/CT program, including significant enhancements to internal controls, AML Compliance Officer function, policies and procedures, audit, training, SAR reporting, customer due diligence requirements, recordkeeping, the account opening procedures and other processes. The OCC also required a Look Back. 33 33

Jerome Walker – AML/CT Enforcement Actions by the OCC in 2006 (Terrabank National Association). G. In the Matter of Terrabank National Association, Miami, Florida, AA-WE-05 -96, Consent Order, 2006 -41, http: //www. occ. treas. gov/FTP/EAs/ea 2006 -41. pdf (May 9, 2006) The OCC also issued a cease and desist order against the bank as the result of its examination findings in a safety and soundness examination. The OCC required comprehensive enhancements to the bank’s AML/CT program, including significant enhancements to internal controls, AML Compliance Officer function, policies and procedures, audit, training, SAR reporting, and customer due diligence requirements. The OCC did not require a Look Back. 34 34

Jerome Walker – AML/CT Enforcement Actions by the OCC in 2006 (Alaska First Bank & Trust, N. A. ). H. Agreement by and between Alaska First Bank & Trust, N. A. and the Comptroller of the Currency, 2006 -15 (February 2, 2006), http: //www. occ. treas. gov/FTP/EAs/ea 2006 -15. pdf In this Formal Agreement, which appeared to be based upon a safety and soundness examination, the OCC included several articles requiring enhancements to the bank’s AML/CT program. The OCC did not include a Look Back requirement. 35 35

Jerome Walker – AML/CT Enforcement Actions by the OCC in 2006 (City First Bank of DC, NA). I. Agreement by and between City First Bank of DC, NA, Washington, D. C. and the Comptroller of the Currency, 2006 -16 (February 6, 2006), http: //www. occ. treas. gov/FTP/EAs/ea 200616. pdf In this Formal Agreement, which appeared to be based upon a safety and soundness examination, the OCC included several articles requiring enhancements to the bank’s AML/CT program. The OCC did not include a Look Back requirement. 36 36

Jerome Walker – AML/CT Enforcement Actions by the OCC in 2006 (First National Bank). J. Agreement by and between First National Bank, Fort Collins, Colorado and the Comptroller of the Currency, 2006 -73 (July 20, 2006), http: //www. occ. treas. gov/FTP/EAs/ea 2006 -73. pdf In this Formal Agreement, the OCC included several standard small bank articles requiring enhancements to the bank’s AML/CT program. The OCC did not include a Look Back requirement. 37 37

Jerome Walker – AML/CT Enforcement Actions by the OCC in 2006 (First National). K. Agreement by and between First National, Julesburg, Colorado and the Comptroller of the Currency, 2006 -128 (October 24, 2006), http: //www. occ. treas. gov/FTP/EAs/ea 2006 -128. pdf In this Formal Agreement, which appears to be as the result of a safety and soundness examination, the OCC included several standard small bank articles requiring enhancements to the bank’s AML/CT program. The OCC did not include a Look Back requirement. 38 38

Jerome Walker – AML/CT Enforcement Actions by the OCC in 2006 (Maryland Bank and Trust Company). L. Agreement by and between Maryland Bank and Trust Company, National Association, Lexington Park, Maryland the Comptroller of the Currency, 2006 -17 (February 10, 2006), http: //www. occ. treas. gov/FTP/EAs/ea 2006 -17. pdf In this Formal Agreement, which appears to be as the result of a safety and soundness examination, the OCC included several standard small bank articles requiring enhancements to the bank’s AML/CT program. The OCC did not include a Look Back requirement. 39 39

Jerome Walker – AML/CT Enforcement Actions by the OCC in 2006 (The First National Bank of Jeffersonville). M. Agreement by and between The First National Bank of Jeffersonville, New York and the Comptroller of the Currency, 2006 -164 (November 28, 2006), http: //www. occ. treas. gov/FTP/EAs/ea 2006 -164. pdf In this Formal Agreement, which appears to be as the result of a safety and soundness examination, the OCC included several standard small bank articles requiring enhancements to the bank’s AML/CT program. The OCC did not include a Look Back requirement. 40 40

Jerome Walker – AML/CT Enforcement Actions by the OCC in 2006 (Vartan National Bank). N. Agreement by and between Vartan National Bank, Harrisburg, Pennsylvania and the Comptroller of the Currency, 2006 -113 (July 12, 2006), http: //www. occ. treas. gov/FTP/EAs/ea 2006 -113. pdf In this Formal Agreement, which appears to be as the result of a safety and soundness examination, the OCC included a small bank article requiring enhancements to the bank’s AML/CT program. The OCC did not include a Look Back requirement. 41 41

Jerome Walker – AML/CT Enforcement Actions by the FDIC in 2007 (Innovative Bank). 5. During 2007 the FDIC completed at least 16 AML/CT enforcement actions againstitutions it supervises: A. In the Matter of Innovative Bank, Oakland, California, Order to Cease and Desist, Docket No. FDIC-07 -096 b (April 26, 2007), http: //www. fdic. gov/bank/individual/enforcement/2007 -04 -01. pdf The FDIC issued a cease and desist order against the bank based upon significant “Program” deficiencies related to policies and procedures, audit, customer due diligence, recordkeeping, training, staffing, SAR reporting, systems deficiencies and other internal control failures. The FDIC did not include a Look Back requirement. 42 42

Jerome Walker – AML/CT Enforcement Actions by the FDIC in 2007 (Bank of Camden). B. In the Matter of Bank of Camden, Tennessee, Order to Cease and Desist, Docket No. FDIC-07 -004 b (April 16, 2007), http: //www. fdic. gov/bank/individual/enforcement/2007 -04 -02. pdf The FDIC issued a cease and desist order against the bank based upon significant “Program” deficiencies related to policies and procedures, audit, customer due diligence, recordkeeping, training, staffing, SAR reporting, OFAC compliance, systems deficiencies and other internal control failures. The FDIC also found that: i. The board of directors failed to provide adequate supervision over and direction to the management of the Bank to prevent AML violations. 43 43

Jerome Walker – AML/CT Enforcement Actions by the FDIC in 2007 (Bank of Camden). ii. The bank’s CIP was ineffective for accounts for persons other than individuals; iii. The bank’s customer due diligence program was ineffective. iv. The bank’s independent testing function was ineffective. v. The bank’s training program was ineffective. The FDIC did not require a Look Back. 44 44

Jerome Walker – AML/CT Enforcement Actions by the FDIC in 2007 (Bank of Guam). C. In the Matter of Bank of Guam, Hagatna, Guam, Order to Cease and Desist, Docket No. FDIC-07 -022 b (May 3, 2007), http: //www. fdic. gov/bank/individual/enforcement/2007 -05 -02. pdf The FDIC issued a cease and desist order against the bank based upon significant “Program” deficiencies related to policies and procedures, audit, customer due diligence, recordkeeping, training, staffing, SAR reporting, systems deficiencies and other internal control failures. The FDIC did not include a Look Back requirement. 45 45

Jerome Walker – AML/CT Enforcement Actions by the FDIC in 2007 (Beardstown Savings, S. B. ). D. In the Matter of Beardstown Savings, S. B. , Beardstown, Illinois, Order to Cease and Desist, Docket No. FDIC-07 -079 b (May 1, 2007), http: //www. fdic. gov/bank/individual/enforcement/200705 -03. pdf As the result of a safety and soundness examination, the FDIC issued a cease and desist order against the bank based upon, among many other failures, the bank’s significant “Program” deficiencies. The FDIC did not include a Look Back requirement. 46 46

Jerome Walker – AML/CT Enforcement Actions by the FDIC in 2007 (Covington County Bank). E. In the Matter of Covington County Bank, Collins, Mississippi, Order to Cease and Desist, Docket No. FDIC-07 -022 b (May 29, 2007), http: //www. fdic. gov/bank/individual/enforcement/2007 -05 -05. pdf The FDIC issued a cease and desist order against the bank based upon significant “Program” deficiencies related to policies and procedures, OFAC compliance, audit, customer due diligence, recordkeeping, training, staffing, SAR reporting, systems deficiencies and other internal control failures. The FDIC did not include a Look Back requirement. The Mississippi Department of Banking and Consumer Finance joined the FDIC in this action. 47 47

Jerome Walker – AML/CT Enforcement Actions by the FDIC in 2007 (Orange Community Bank). F. In the Matter of Orange Community Bank, Orange, California, Order to Cease and Desist, Docket No. FDIC-07 -120 b (June 25, 2007), http: //www. fdic. gov/bank/individual/enforcement/2007 -06 -01. pdf The FDIC issued a cease and desist order against the bank based upon significant “Program” deficiencies related to policies and procedures, audit, customer due diligence, recordkeeping, training, staffing, SAR reporting, systems deficiencies and other internal control failures. The FDIC did not include a Look Back requirement. 48 48

Jerome Walker – AML/CT Enforcement Actions by the FDIC in 2007 (Green Belt Bank & Trust). G. In the Matter of Green Belt Bank & Trust, Iowa Falls, Iowa, Order to Cease and Desist, Docket No. FDIC-07 -158 b (July 19, 2007), http: //www. fdic. gov/bank/individual/enforcement/2007 -07 -01. pdf The FDIC issued a cease and desist order against the bank based upon significant “Program” deficiencies related to policies and procedures, audit, customer due diligence, recordkeeping, training, staffing, SAR reporting, systems deficiencies, insufficient responses to requests from law enforcement, and other internal control failures. The FDIC did not include a Look Back requirement. 49 49

Jerome Walker – AML/CT Enforcement Actions by the FDIC in 2007 (United Bank and Trust Company). H. In the Matter of United Bank and Trust Company, New Orleans, Louisiana, Order to Cease and Desist, Docket No. FDIC-07 -175 b (February 16, 2007), http: //www. fdic. gov/bank/individual/enforcement/2007 -02 -03. pdf As the result of a safety and soundness examination, the FDIC issued a cease and desist order against the bank based upon significant “Program” deficiencies related to policies and procedures, audit, customer due diligence, recordkeeping, training, staffing, SAR reporting, systems deficiencies, and other internal control failures. The FDIC did not include a Look Back requirement. The Louisiana Office of Financial Institutions joined the FDIC in this action. 50 50

Jerome Walker – AML/CT Enforcement Actions by the FDIC in 2007 (Mid State Bank). I. In the Matter of Mid State Bank, Waterville, Washington, Order to Cease and Desist, Docket No. FDIC-07 -006 b (February 8, 2007), http: //www. fdic. gov/bank/individual/enforcement/2007 -02 -05. pdf The FDIC issued a cease and desist order against the bank based upon significant “Program” deficiencies related to policies and procedures, audit, customer due diligence, recordkeeping, training, staffing, SAR reporting, OFAC compliance, insufficient responses to law enforcement requests, systems deficiencies, and other internal control failures. The FDIC did not include a Look Back requirement. 51 51

Jerome Walker – AML/CT Enforcement Actions by the FDIC in 2007 (United Roosevelt Savings Bank). J. In the Matter of Union Roosevelt Savings Bank, Carteret, New Jersey, Order to Cease and Desist, Docket No. FDIC-07 -003 b (March 7, 2007), http: //www. fdic. gov/bank/individual/enforcement/2007 -03 -02. pdf The FDIC issued a cease and desist order against the bank based upon significant “Program” deficiencies related to policies and procedures, audit, customer due diligence, recordkeeping, training, staffing, SAR reporting, OFAC compliance, insufficient responses to law enforcement requests, systems deficiencies, and other internal control failures. The FDIC included a Look Back requirement. 52 52

Jerome Walker – AML/CT Enforcement Actions by the FDIC in 2007 (Eurobank). K. In the Matter of Eurobank, Hato Rey, Puerto Rico, Order to Cease and Desist, Docket No. FDIC-07 -018 b (March 15, 2007), http: //www. fdic. gov/bank/individual/enforcement/2007 -03 -05. pdf The FDIC issued a cease and desist order against the bank based upon significant “Program” deficiencies related to policies and procedures, audit, customer due diligence, recordkeeping, training, staffing, SAR reporting, OFAC compliance, insufficient responses to law enforcement requests, systems deficiencies, and other internal control failures. The FDIC included a Look Back requirement. 53 53

Jerome Walker – AML/CT Enforcement Actions by the FDIC in 2007 (First Community Bank). L. In the Matter of First Community Bank, Vanceburg, Kentucky, Order to Cease and Desist, Docket No. FDIC-07 -090 b (July 9, 2007), http: //www. fdic. gov/bank/individual/enforcement/2007 -07 -02. pdf The FDIC issued a cease and desist order against the bank based upon significant “Program” deficiencies related to policies and procedures, audit, customer due diligence, recordkeeping, training, staffing, SAR reporting, OFAC compliance, insufficient responses to law enforcement requests, systems deficiencies, and other internal control failures. The FDIC did not include a Look Back requirement. The Office of Financial Institutions of the Commonwealth of Kentucky joined the FDIC in this action. 54 54

Jerome Walker – AML/CT Enforcement Actions by the FDIC in 2007 (Central Progressive Bank). M. In the Matter of Central Progressive Bank, Lacombe, Louisiana, Order to Cease and Desist, Docket No. FDIC-07 -105 b (July 12, 2007), http: //www. fdic. gov/bank/individual/enforcement/2007 -07 -03. pdf The FDIC issued a cease and desist order against the bank, as the result of a safety and soundness examination, based upon, among other deficiencies, significant “Program” deficiencies related to policies and procedures, audit, customer due diligence, recordkeeping, training, staffing, SAR reporting, OFAC compliance, systems deficiencies, and other internal control failures. The FDIC did not include a Look Back requirement. 55 55

Jerome Walker – AML/CT Enforcement Actions by the FDIC in 2007 (First State Bank of Kensington). N. In the Matter of First State Bank of Kensington, Minnesota, Order to Cease and Desist, Docket No. FDIC-07 -130 b (July 26, 2007), http: //www. fdic. gov/bank/individual/enforcement/2007 -07 -04. pdf The FDIC issued a cease and desist order against the bank, as the result of a safety and soundness examination, based upon, among other deficiencies, significant “Program” deficiencies related to policies and procedures, audit, customer due diligence, recordkeeping, training, staffing, SAR reporting, insufficient responses to law enforcement requests, systems deficiencies, and other internal control failures. The FDIC did not include a Look Back requirement. 56 56

Jerome Walker – AML/CT Enforcement Actions by the FDIC in 2007 (The Greene County Bank). O. In the Matter of The Greene County Bank, Strafford, Missouri, Order to Cease and Desist, Docket No. FDIC-07 -227 b (January 3, 2007), http: //www. fdic. gov/bank/individual/enforcement/2007 -01 -01. pdf The FDIC issued a cease and desist order against the bank, as the result of a safety and soundness examination, based upon, among other deficiencies, significant “Program” deficiencies related to policies and procedures, audit, customer due diligence, recordkeeping, training, staffing, OFAC compliance, SAR reporting, insufficient responses to law enforcement requests, systems deficiencies, and other internal control failures. The FDIC did not include a Look Back requirement. 57 57

Jerome Walker – AML/CT Enforcement Actions by the FDIC in 2007 (Ocean Bank). P. In the Matter of Ocean Bank, Miami, Florida, Order to Cease and Desist, Docket No. FDIC-07 -017 b (March 16, 2007), http: //www. fdic. gov/bank/individual/enforcement/2007 -03 -01. pdf The FDIC issued a cease and desist order against the bank, as the result of a safety and soundness examination, based upon, among other deficiencies, significant “Program” deficiencies related to policies and procedures, audit, customer due diligence, recordkeeping, training, staffing, OFAC compliance, SAR reporting, insufficient responses to law enforcement requests, systems deficiencies, and other internal control failures. The FDIC did not include a Look Back requirement. The Florida Banking Department joined the FDIC in this action. 58 58

Jerome Walker – AML/CT Enforcement Actions by the Banking Department in 2007 (Brown Brothers Harriman). 6. During 2007 the Banking Department completed at least 10 AML/CT enforcement actions againstitutions it supervises: A. Written Agreement between Brown Brothers Harriman & Co, New York and the Banking Department (August 31, 2007), http: //www. banking. state. ny. us/ea 070831. pdf The Banking Department entered into the agreement with Brown Brothers to require Brown Brothers to make enhancements to its policies and procedures, OFAC compliance, audit program, customer due diligence, correspondent banking compliance activities, private banking compliance activities, SAR reporting, transaction monitoring and systems. The Banking Department included a Look Back requirement. 59 59

Jerome Walker – AML/CT Enforcement Actions by the Banking Department in 2007 (American Express Bank Ltd). B. Written Agreement between American Express Bank, Ltd. , New York and the Banking Department (August 6, 2007), http: //www. banking. state. ny. us/ea 070806. htm The Banking Department entered into the agreement with American Express Bank to require the bank to make enhancements to its international wire transfers and correspondent banking services compliance program, policies and procedures, audit program, customer due diligence, SAR reporting, transaction monitoring and systems. The Banking Department included a Look Back requirement. 60 60

Jerome Walker – AML/CT Actions by the Banking Department in 2007 (First American International Bank). C. In the Matter of First American International Bank, Brooklyn, New York, Order to Cease and Desist Issued Upon Consent (August 3, 2007), http: //www. banking. state. ny. us/ea 070804. htm The Banking Department imposed a cease and desist order to require the bank to address significant “Program” deficiencies in its AML/CT program, including deficiencies related to its policies and procedures, audit program, customer due diligence, OFAC compliance, wire transfer monitoring, risk assessments, CIP, information sharing, SAR reporting, transaction monitoring and systems. The Banking Department included a Look Back requirement. 61 61

Jerome Walker – AML/CT Enforcement Actions by the Banking Department in 2007 (Canisteo Savings Bank). D. In the Matter of Canisteo Savings and Loan Association, Canisteo, New York, Order to Cease and Desist (June 28, 2007), http: //www. banking. state. ny. us/ea 070628. htm The Banking Department imposed a cease and desist order, as a part of a safety and soundness examination, to require the savings association to address, among many other deficiencies, significant “Program” deficiencies in its AML/CT program. The Banking Department did not include a Look Back requirement. An enforcement action was also imposed by the Office of Thrift Supervision. 62 62

Jerome Walker – AML/CT Enforcement Actions by the Banking Department in 2007 (Niagara Frontier). E. In the Matter of Niagara Frontier Federal Employees Credit Union, Niagara Falls, New York, Order to Cease and Desist (June 22, 2007), http: //www. banking. state. ny. us/ea 070622. htm The Banking Department imposed a cease and desist order, as the result of a safety and soundness examination, to require the credit union to address, among other deficiencies, “Program” deficiencies in its AML/CT program, including its OFAC compliance program. The Banking Department did not include a Look Back requirement. 63 63

Jerome Walker – AML/CT Enforcement Actions by the Banking Department in 2007 (Niagara Falls Penn Central). F. In the Matter of Niagara Falls Penn Central Employees Credit Union, Niagara Falls, New York, Order to Cease and Desist (June 15, 2007), http: //www. banking. state. ny. us/ea 070615. htm The Banking Department imposed a cease and desist order, as the result of a safety and soundness examination, to require the credit union to address, among other deficiencies, “Program” deficiencies in its AML/CT program. The Banking Department did not include a Look Back requirement. 64 64

Jerome Walker – AML/CT Enforcement Actions by the Banking Department in 2007 (C. L. B. Check Cashing, Inc. ). G. In the Matter of C. L. B. Check Cashing, Inc. , Springfield Gardens, New York, Section 39 Order (April 26, 2007), http: //www. banking. state. ny. us/ea 070426. htm and (August 15, 2006) http: //www. banking. state. ny. us/ea 060815. htm The Banking Department imposed an order on the money service business as the result of criminal indictments and plea agreements of certain officers related to money laundering and other crimes. The Banking Department did not include a Look Back requirement. 65 65

Jerome Walker – AML/CT Enforcement Actions by the Banking Department in 2007 (Intesa Sanpaolo S. p. A. ). H. Written Agreement by and among Intesa Sanpaolo S. p. A. , Turin, Italy, Intesa Sanpaolo S. p. A. , New York Branch, New York, Federal Reserve Bank of New York and New York State Banking Department, Docket Nos. 06 -030 -WA/RB-FB/06 -030 WA/RB-FBR (March 2, 2007), http: //www. banking. state. ny. us/pr 070313. pdf The NY Fed and the Banking Department entered into this agreement with Intesa Sanpaolo based upon its correspondent banking services to non-US banks, non-US branches and affiliates of Intesa Sanpaolo and its US Dollar funds transfer clearing activities. The agreement included a Look Back requirement. 66 66

Jerome Walker – AML/CT Enforcement Actions by the Banking Department in 2007 (Banco de la Nacion). I. Written Agreement by and among Banco de la Nacion Argentina, Buenos Aires, Argentina, Banco de la Nacion Argentina, New York Branch, New York, Federal Reserve Bank of New York and New York State Banking Department, Docket Nos. 06 -034 -WA/RB-FB/06 -034 -WS/RB-FBR (March 2, 2007), http: //www. banking. state. ny. us/ea 070306. pdf The NY Fed and the Banking Department entered into this agreement with Banco de la Nacion based upon its correspondent banking services to non-US financial institutions, funds transfers, pouch activity, customer due diligence deficiencies and OFAC issues. The agreement included a Look Back requirement. 67 67

Jerome Walker – AML/CT Enforcement Actions by the Banking Department in 2007 (Sumitomo Mitsui). J. Written Agreement by and among Sumitomo Mitsui Banking Corporation, Tokyo, Japan, Sumitomo Mitsui Banking Corporation, New York Branch, New York, Federal Reserve Bank of New York and New York State Banking Department, Docket Nos. 06 -029 -WA/RB-FB/06 -029 -WA/RB-FBR (January 22, 2007), http: //www. banking. state. ny. us/ea 070124. pdf The NY Fed and the Banking Department entered into this agreement with Sumitomo Mitsui Banking Corporation based upon its correspondent banking services to non-US financial institutions and US Dollar funds transfer clearing. The agreement included a Look Back requirement. 68 68

Jerome Walker – AML/CT Enforcement Actions by the Banking Department in 2006 (Habib Bank Limited). 7. During 2006 the Banking Department completed at least 6 AML/CT enforcement actions againstitutions it supervises: A. Written Agreement by and among Habib Bank Limited, Karachi, Pakistan, Habib Bank Limited, New York Branch, New York, Federal Reserve Bank of New York and New York State Banking Department, Docket Nos. 06 -027 -WA/RB-FB/06 -027 WA/RB-FBR (December 19, 2006), http: //www. banking. state. ny. us/ea 061221. pdf The NY Fed and the Banking Department entered into this agreement with Habib Bank Limited based upon its correspondent banking services to non-US financial institutions and US Dollar funds transfer clearing. The agreement included a Look Back requirement. 69 69

Jerome Walker – AML/CT Enforcement Actions by the Banking Department in 2006 (Mitsubishi UFJ). B. Written Agreement by and among Mitsubishi UFJ Financial Group, Inc. , Tokyo, Japan, The Bank of Tokyo-Mitsubishi UFJ, Ltd. , New York Branch, New York, Federal Reserve Bank of San Francisco, Federal Reserve Bank of New York and New York State Banking Department, Docket Nos. 06 -028 -WA/RB-FH/06 -028 WA/RB-FB/06 -028 -WA/RB-FBR (December 18, 2006), http: //www. banking. state. ny. us/ea 061218 a. pdf The SF Fed, the NY Fed and the Banking Department entered into this agreement with The Bank of Tokyo-Mitsubishi UFJ based upon its correspondent banking services to non-US financial institutions and US Dollar funds transfer clearing. The agreement included a Look Back requirement. The Banking Department and the FDIC also imposed a cease and desist order on Bank of Tokyo-Mitsubishi UFJ Trust Company. See http: //www. banking. state. ny. us/ea 061218. pdf 70 70

Jerome Walker – AML/CT Enforcement Actions by the Banking Department in 2006 (Israel Discount Bank). C. In the Matter of Israel Discount Bank of New York, Order of Assessment of Civil Monetary Penalty Upon Consent (October 20, 2006), http: //www. banking. state. ny. us/ea 061020. pdf The Banking Department imposed a $6 million civil money penalty against the bank as a result of deficiencies in its AML/CT programs, especially its private banking operations in Latin America. Enforcement actions were also taken by the FDIC and Fin. CEN. 71 71

Jerome Walker – AML/CT Actions by the Banking Department in 2006 (Banco Industrial de Venezuela). D. Written Agreement by and among Banco Industrial de Venezuela, C. A. , Caracas, Venezuela, Banco Industrial de Venezuela, C. A. , New York Agency, Banco Industrial de Venezuela, C. A. , Miami Agency, Federal Reserve Bank of Atlanta, Federal Reserve Bank of New York, New York State Banking Department and State of Florida, Office of Financial Regulation, Docket Nos. 06017 -WA/RB-FB/06 -017 -WA/RB-FA 1/06 -017 -WA/RB-FA 2 (July 5, 2006), http: //www. banking. state. ny. us/ea 060714. pdf The Atlanta Fed, the NY Fed, the Florida Banking Department and the Banking Department entered into this agreement with Banco Industrial de Venezuela based upon its customer due diligence, customer identification and other deficiencies, correspondent accounts and OFAC issues. The agreement did not include a Look Back requirement. 72 72

Jerome Walker – AML/CT Enforcement Actions by the Banking Department in 2006 (Liberty Bank of New York). E. In the Matter of Liberty Bank of New York, Order of Assessment of Civil Monetary Penalty Upon Consent (May 18, 2006), http: //www. banking. state. ny. us/ea 060518. pdf The Banking Department imposed a $300, 000 cease and desist order to require the bank to address significant “Program” deficiencies in its AML/CT program. The bank also violated the terms of a 2004 cease and desist order. 73 73

Jerome Walker – AML/CT Enforcement Actions by the Banking Department in 2006 (The Bank of New York). F. Written Agreement by and among The Bank of New York, Federal Reserve Bank of New York and New York State Banking Department, Docket No. 06 -009 -WA/RB-SM (April 21, 2006), http: //www. banking. state. ny. us/ea 060424. pdf The NY Fed and the Banking Department entered into this agreement with The Bank of New York based upon its deficiencies in the bank’s enhanced due diligence program in private banking and the role of the Audit Department in AML/CT. The agreement did not include a Look Back requirement. 74 74

Jerome Walker – AML/CT Enforcement Actions by FINRA (NASD) in 2007 (Empire Financial Group, Inc. ). 8. During 2007 FINRA completed at least 13 AML/CT enforcement actions againstitutions it supervises: A. Empire Financial Group, Inc. , (CRD #28759, Longwood, Florida), George Randy Cupples (CRD #4029475, Registered Principal, Fort Lauderdale, Florida) and Pamela Cathy Ohab (CRD #2700308, Registered Principal, Altamonte Springs, Florida) submitted a Letter of Acceptance, Waiver and Consent in which the firm was fined $145, 000, of which $10, 000 was jointly and severally with Cupples, and $10, 000 was jointly and severally with Ohab. Cupples and Ohab were each suspended from association with any FINRA member in a financial and operations principal capacity for 30 business days. (Disciplinary and Other FINRA Actions reported for September 2007) 75 75

Jerome Walker – AML/CT Enforcement Actions by FINRA (NASD) in 2007 (Empire Financial Group, Inc. ). FINRA determined, among other things, that the firm failed to conduct an independent testing of its AML/CT compliance program, failed to develop and implement an adequate supervisory system for detecting and reporting suspicious activity, and failed to establish and implement policies, procedures and internal controls reasonably designed to achieve compliance with the Bank Secrecy Act, including an adequate CIP. (NASD Case #2005000450504), (Disciplinary and Other FINRA Actions reported for September 2007) http: //www. finra. org/web/groups/enforcement/documents/monthly_di sciplinary_actions/p 036918. pdf 76 76

Jerome Walker – AML/CT Enforcement Actions by FINRA (NASD) in 2007 (First American Capital and Trading Corporation fka STC Securities, Inc. ). B. First American Capital and Trading Corporation formerly known as STC Securities, Inc. (CRD #118812, Boca Raton, Florida) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured, fined $30, 000 and required to have all its registered persons register for three hours of AML/CT) training. FINRA determined that, among other things, the firm: 1. Failed to implement an adequate AML/CT compliance program in that it failed to provide, or to document that it had provided, adequate AML/CT training for either the firm’s designated AML/CT officers or the firm’s employees 2. Failed to establish and implement an adequate CIP. 3. Failed to conduct independent internal testing of its AML/CT compliance program. 77 77

Jerome Walker – AML/CT Enforcement Actions by FINRA (NASD) in 2007 (First American Capital and Trading Corporation fka STC Securities, Inc. ). 4. Failed to establish and implement an adequate CIP in that the firm did not establish or implement adequate policies or procedures to conduct additional due diligence for their higher risk accounts, including foreign account-holders. 5. Failed to establish and implement adequate SAR procedures in that it failed to monitor for, identify and analyze unusual activity for possible SAR filing. 6. Failed to identify and analyze various AML/CT “red flags, “ including large wire transfers and deposit of large amounts of lowpriced securities to determine if they were in fact suspicious and were required to be reported on a SAR-SF. (NASD Case #SAF 2004044701), (Disciplinary and Other FINRA Actions reported for August 2007), http: //www. finra. org/web/groups/enforcement/documents/monthly_di sciplinary_actions/p 036462. pdf 78 78

Jerome Walker – AML/CT Enforcement Actions by FINRA (NASD) in 2007 (Janco Partners, Inc. ). C. Janco Partners, Inc. (CRD #40055, Greenwood Village, Colorado) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $60, 000. FINRA determined, among other things, that the firm’s written supervisory procedures were not reasonably designed to achieve compliance with NASD Rule 2711 in that the procedures did not include steps to monitor and achieve compliance with the rule. FINRA also determined that the firm failed to retain its e-mails in an easily accessible place and to implement its CIP in connection with new customer accounts as part of the firm’s compliance with the requirements of the Bank Secrecy Act, and the firm’s written supervisory procedures relating to the CIP did not accurately describe its AML/CT program as implemented. 79 79

Jerome Walker – AML/CT Enforcement Actions by FINRA (NASD) in 2007 (Janco Partners, Inc. ). FINRA also found that the firm’s implementation of its independent testing was inadequate in that it failed to retain all documentation evidencing areas that had been reviewed and tested, and it failed to detect the deficiencies with its CIP. FINRA also found that the firm’s written procedures did not address how often its independent tests needed to be conducted and did not address how the firm would handle situations in which independent testing was conducted by a person who reported to a person whose activities he or she was testing. (NASD Case #2006003976301), (Disciplinary and Other FINRA Actions reported for August 2007), http: //www. finra. org/web/groups/enforcement/documents/monthly_di sciplinary_actions/p 036462. pdf 80 80

Jerome Walker – AML/CT Enforcement Actions by FINRA (NASD) in 2007 (Karl Edmund Roesler Jr. ). D. Karl Edmund Roesler Jr. (CRD #2455080, Registered Representative, Louisville, Kentucky) was barred from association with any FINRA member in any capacity based on FINRA findings that Roesler knowingly submitted wire transfer documents to his member firm for a total of $127, 549. 56 that contained the signature of a family member that had been forged by another family member. The findings stated that Roesler did not provide full disclosure of the facts concerning the wire transfers when first questioned by his member firm’s AML/CT unit, and attempted to conceal the forgeries from his supervisors when they contacted him about the wire transfers. (NASD Case #20050026124 -01), (Disciplinary and Other FINRA Actions reported for August 2007), http: //www. finra. org/web/groups/enforcement/documents/monthly_di sciplinary_actions/p 036462. pdf 81 81

Jerome Walker – AML/CT Enforcement Actions by FINRA (NASD) in 2007 (North American Clearing, Inc. ). E. North American Clearing, Inc. (CRD #39118, Longwood, Florida) was named as a respondent in a FINRA complaint alleging that, among other things, as of March 7, 2005, the firm had not conducted independent testing of its AML/CT compliance program, failed to provide prompt notification to FINRA of the change of its AML/CT compliance officer until on or about July 25, 2005, failed to update the FINRA Contact System to designate a new AML/CT compliance officer, and during 2003 and 2004, failed to conduct ongoing AML/CT training for appropriate personnel. The complaint also alleges that the firm’s compliance program was inadequate, in that it failed to establish polices and procedures reasonably designed to detect and cause the reporting of suspicious transactions required under 31 U. S. C. 5318(g) and the implementing regulations thereunder. (Disciplinary and Other FINRA Actions reported for August 2007), http: //www. finra. org/web/groups/enforcement/documents/monthly_di sciplinary_actions/p 036462. pdf 82 82

Jerome Walker – AML/CT Enforcement Actions by FINRA (NASD) in 2007 (Pension Fund Evaluations, Inc. ). F. Pension Fund Evaluations, Inc. (CRD #10985, Centereach, New York) and Gregory George Philipps (CRD #1544670, Registered Principal, Lake Grove, New York) submitted a Letter of Acceptance, Waiver and Consent in which they were censured and fined $7, 500, jointly and severally. The firm was fined an additional $18, 500 and Philipps was fined an additional $2, 500. FINRA determined, among other things, that the firm failed to develop an AML/CT program reasonably designed to achieve and monitor compliance with the requirements of the Bank Secrecy Act and the implementing regulations promulgated thereunder. (NASD Case #ELI 2005005401), (Disciplinary and Other NASD Actions reported for July 2007), http: //www. finra. org/web/groups/enforcement/documents/monthly_di sciplinary_actions/p 019403. pdf 83 83

Jerome Walker – AML/CT Enforcement Actions by FINRA (NASD) in 2007 (White Mountain Capital, LLC). G. White Mountain Capital, LLC (CRD #104123, New York) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured, fined $100, 000 and required to review its supervisory system and procedures concerning preservation of electronic communications, registration of representatives and preregistration Web CRD searches for compliance with federal securities laws, regulations and NASD rules. The NASD determined, among other things, that the firm failed to implement a written AML/CT program reasonably designed to achieve compliance with the requirements imposed by the Bank Secrecy Act and the regulations promulgated thereunder and specifically failed to establish and implement an adequate CIP. (NASD Case #E 9 B 2005016802), (Disciplinary and Other NASD Actions reported for July 2007), http: //www. finra. org/web/groups/enforcement/documents/monthly_di sciplinary_actions/p 019403. pdf 84 84

Jerome Walker – AML/CT Enforcement Actions by FINRA (NASD) in 2007 (White Pacific Securities, Inc. ). H. White Pacific Securities, Inc. (CRD #42505, San Francisco, California) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $125, 000. The NASD determined, among other things, that the firm’s AML/CT compliance program was not reasonable designed to achieve and monitor compliance with the BSA in that the AML/CT compliance program as a whole was not “risk-based“ when viewed in the context of the firm’s business, and the geographic locations of its customers. Also, the procedures for monitoring accounts for suspicious activity were not reasonably designed to detect such activity in light of the nature of the firm’s business and its customer base and the firm failed to hold annual training between April 2002 and September 2004 or the training was inadequate. (NASD Case #E 0120040096 -02), (Disciplinary and Other NASD Actions reported for June 2007), http: //www. finra. org/web/groups/enforcement/documents/monthly_di sciplinary_actions/p 019303. pdf 85 85

Jerome Walker – AML/CT Enforcement Actions by FINRA (NASD) in 2007 (Nevwest Securities Corporation). I. Nevwest Securities Corporation (CRD #46464, Las Vegas, Nevada), Sergey Rumyantsev (CRD #4009791, Registered Principal, Las Vegas, Nevada) and Antony Michel Santos (CRD #3239243, Registered Principal, Las Vegas, Nevada) submitted an Offer of Settlement in which the firm was censured and fined $100, 000, of which $100, 000 was joint and several with Santos and $75, 000 was joint and several with Rumyanstev, and required to hire an independent consultant to review the firm’s policies, controls, systems, procedures and training relating to the firm’s ability to comply with the Bank Secrecy Act, NASD Rule 3011 and other AML/CT statutes and regulations. Rumyantsev and Santos were each censured, suspended from association with any NASD member in all principal capacities for three months and required to complete 16 hours of AML training each year for a two-year period, 16 hours within six months after the settlement’s effective date. 86 86

Jerome Walker – AML/CT Enforcement Actions by FINRA (NASD) in 2007 (Nevwest Securities Corporation). The NASD, among other things, found that the firm failed to adequately implement and enforce AML/CT procedures, adequately perform due diligence, file SARs or cease trading in multiple accounts a public customer of the firm owned and controlled. The NASD found that the respondents were aware, or should reasonably have been aware, of “red flags” that should have triggered the firm’s AML/CT obligations. (NASD Case #E 0220040112 -01), (Disciplinary and Other NASD Actions reported for May 2007), http: //www. finra. org/web/groups/enforcement/documents/monthly_di sciplinary_actions/p 019158. pdf 87 87

Jerome Walker – AML/CT Enforcement Actions by FINRA (NASD) in 2007 (William Frederick Ross). J. William Frederick Ross (CRD #1459870, Registered Principal, Spokane, Washington) submitted an Offer of Settlement in which he was fined $50, 000, suspended from association with any NASD member in a principal capacity for one year and required to complete 25 hours of AML/CT continuing education within 12 months of becoming associated with any NASD member firm. The NASD found, among other things, that Ross failed to establish, maintain and enforce written procedures reasonably designed to supervise his member firm’s wholesale trading and market making business and its registered representatives’ actions. The NASD found that he failed to provide adequate AML/CT training for appropriate personnel and failed to provide for independent testing for AML/CT compliance by member personnel or a qualified outside party. NASD found that because Ross failed to monitor and analyze manipulative trading, he did not further investigate suspicious activity to determine if he should file a SAR. (NASD Case #2005000094001), (Disciplinary and Other NASD Actions reported for May 2007), http: //www. finra. org/web/groups/enforcement/documents/monthly_di sciplinary_actions/p 019158. pdf 88 88

Jerome Walker – AML/CT Enforcement Actions by FINRA (NASD) in 2007 (Vision Securities, Inc. ). K. Vision Securities, Inc. (CRD #35001, Melville, New York) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $27, 500. The NASD, among other things, found that the firm failed to develop an AML/CT program reasonably designed to achieve and monitor its compliance with the requirements of the Bank Secrecy Act and the implementing regulations promulgated thereunder. (NASD Case #ELI 2005001201), (Disciplinary and Other NASD Actions reported for March 2007), http: //www. finra. org/web/groups/enforcement/documents/monthly_di sciplinary_actions/p 018824. pdf 89 89

Jerome Walker – AML/CT Enforcement Actions by FINRA (NASD) in 2007 (Banc of America Investment Services, Inc. ). L. “The NASD fined Banc of America Investment Services, Inc. (“BAI”) $3 million in connection with the firm’s failure to obtain customer information for certain high-risk accounts and for failing to have adequate communication with its parent bank to ensure that BAI’s independent SAR filing obligations were met. The AML/CT laws are designed to ensure that customer and transaction risks are assessed and that firms take appropriate steps to address high risks. BAI fundamentally failed to meet its obligations with these high risk accounts by failing to adequately investigate and pursue red flags, especially in the face of repeated requests for additional information about the accountholders from its own clearing firm. The NASD found that BAI failed to obtain required additional customer information for high risk accounts. The 34 accounts at issue involved trust and private investment corporations domiciled in the Isle of Man and apparently affiliated with one family. The offshore entities located in the Isle of Man collectively held from $79 million to $93 million in assets and engaged in multi-million-dollar wire transfers across international boundaries. ” 90 90

Jerome Walker – AML/CT Enforcement Actions by FINRA (NASD) in 2007 (Banc of America Investment Services, Inc. ). “At the time the accounts were opened in August 2003, BAI had established AML/CT procedures designed to address certain customer account risks by requiring additional information from the accountholders, specifically, the names of the beneficial owners, before conducting substantial transactions in the accounts. Nevertheless, from August 2003 to Oct. 22, 2004, BAI did not require the names of the beneficial owners and never restricted the activities in the accounts. BAI allowed the accounts to engage in large wire transactions, even though BAI did not have beneficial ownership information for them. In addition, throughout this time period, the firm continued to allow significant transactions to occur in the accounts despite the advice from a senior lawyer at BAI in March 2004 that BAI should obtain the names of the beneficial owners, and a determination by the BAI risk committee in May 2004 that the information must be obtained. ” (Disciplinary and Other NASD Actions reported for March 2007), http: //www. finra. org/web/groups/enforcement/documents/monthly_di sciplinary_actions/p 018824. pdf 91 91

Jerome Walker – AML/CT Enforcement Actions by FINRA (NASD) in 2007 (Banc of America Investment Services, Inc. ). “Further, despite repeated and ongoing requests by its clearing firm, BAI failed to obtain the names of the beneficial owners, and to provide them to its clearing firm. Over a 10 -month period, BAI received from its clearing firm numerous requests for ownership information and notices pointing out circumstances that could signal AML/CT activity. Some at BAI expressed concerns that insisting upon the beneficial ownership information might cause the account holders to move the accounts to another institution. But without the names of the beneficial owners, BAI could not reasonably evaluate whether activity in the accounts, which had been brought to BAI’s attention by its clearing firm, was suspicious and reportable. ” (Disciplinary and Other NASD Actions reported for March 2007), http: //www. finra. org/web/groups/enforcement/documents/monthly_di sciplinary_actions/p 018824. pdf 92 92

Jerome Walker – AML/CT Enforcement Actions by FINRA (NASD) in 2007 (Banc of America Investment Services, Inc. ). “In addition, NASD also found that BAI had an inadequate compliance program for reporting suspicious transactions. While BAI relied on its parent, a bank with its own independent reporting obligations, to determine whether a SAR should be filed, BAI did not have sufficient procedures in place to ensure that there was adequate communication between BAI and its parent as to whether a SAR should be filed and whether a SAR had in fact been filed. Consequently, BAI did not make certain that its independent obligations regarding the filing of a SAR were met. BAI was also unable to reliably incorporate the information that a SAR had been filed into an ongoing risk assessment of its customers and to evaluate account activity going forward. ” (Disciplinary and Other NASD Actions reported for March 2007), http: //www. finra. org/web/groups/enforcement/documents/monthly_di sciplinary_actions/p 018824. pdf 93 93

Jerome Walker – AML/CT Enforcement Actions by FINRA (NASD) in 2007 (Strand, Atkinson, Williams & York, Inc. ). M. Strand, Atkinson, Williams & York, Inc. (CRD #1254, Portland, Oregon) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $50, 000. The NASD found, among other things, that the firm failed to develop and implement a written AML/CT program reasonably designed to achieve and monitor compliance with the requirements of the Bank Secrecy Act and the regulations promulgated there under. (NASD Case #E 3 B 2005004401), (Disciplinary and Other NASD Actions reported for January 2007), http: //www. finra. org/web/groups/enforcement/documents/monthly_di sciplinary_actions/p 018298. pdf 94 94

Jerome Walker - The AML Manual: Unanswered Questions and Challenges from the Regulatory Agency Community. Notwithstanding how useful and authoritative the AML Manual is, unanswered questions remain regarding, among other things: 1. How much staff is enough staff? 2. How many suspicious activity reports must be filed to reach a conclusion that enough suspicious activity reports have been filed? 3. How much due diligence is enough due diligence? 4. How much reliance may be place on the Manual, and under what circumstances? 95 95

Jerome Walker - The AML Manual: Unanswered Questions and Challenges from the Regulatory Agency Community. 5. What lessons should financial institutions learn from enforcement actions? 6. How much documentation is enough documentation? 7. Should examiners defer to financial institutions with strong staffs and reasonable internal controls like the way they propose to do with capital adequacy? 8. Where is the line between deficiencies which require informal corrective actions and deficiencies which require formal administrative actions? 9. Whose standards must be followed: the regulatory agency community? the law enforcement community? the intelligence community? 96 96

Jerome Walker - The AML Manual: Unanswered Questions and Challenges from the Regulatory Agency Community. 10. Should safe harbors be granted to financial institutions under certain circumstances? 11. Are peer group comparisons afforded too much weight? 12. Are trade association positions afforded too little weight? 13. Should it be a mitigating factor if a qualified, independent audit staff with a competent audit program conducted an AML/CT audit and did not find any violations of law or significant deficiencies? 14. Are financial institutions held to an insurmountable standard when certain entities are involved (e. g. , casas de cambio, money service businesses, politically exposed persons, offshore entities such as private investment companies and international business corporations)? 15. Should ambiguities in the AML Manual be resolved in favor of a financial institution in the context of an enforcement action? 97 97

Jerome Walker - The AML Manual: Unanswered Questions and Challenges from the Regulatory Agency Community. 1. The Manual “provides guidance to examiners for carrying out BSA/AML and Office of Foreign Assets Control (OFAC) examinations. …the manual also provides guidance on identifying and controlling risks associated with money laundering and terrorist financing. ” 2. “Banks should take reasonable and prudent steps to combat money laundering and terrorist financing and to minimize their vulnerability to the risk associated with such activities. ” 3. “Banking organizations must develop, implement, and maintain effective AML programs that address the ever-changing strategies of money launderers and terrorists who attempt to gain access to the U. S. financial system. ” 98 98

Jerome Walker - The AML Manual: Unanswered Questions and Challenges from the Regulatory Agency Community. 4. “The federal banking agencies do not have targeted volumes or “quotas” for SAR and CTR filings for a given bank size or geographic location. Examiners should not criticize a bank solely because the number of SARs or CTRs filed is lower than SARs or CTRs filed by “peer” banks. However, as part of the examination, examiners must review significant changes in the volume or nature of SARs and CTRs filed and assess potential reasons for these changes. ” 99 99

Jerome Walker - The AML Manual: Unanswered Questions and Challenges from the Regulatory Agency Community. 5. “In evaluating the risk assessment, an examiner should not necessarily take any single indicator as determinative of the existence of a lower or higher BSA/AML risk. The assessment of risk factors is bank-specific, and a conclusion regarding the risk profile should be based on a consideration of all pertinent information. Banks may determine that some factors should be weighed more heavily than others. For example, the number of funds transfers is certainly one factor to be considered in assessing risk; however, in order to effectively identify and weigh the risks, the examiner should look at other factors associated with those funds transfers, such as whether they are international or domestic, the dollar amounts involved, and the nature of the customer relationships. ” 100

Jerome Walker - The AML Manual: Unanswered Questions and Challenges from the Regulatory Agency Community. 6. “Independent testing (audit) should review the bank’s risk assessment for reasonableness. Additionally, management should consider the staffing resources and the level of training necessary to promote adherence with these policies, procedures, and processes. For those banks that assume a higher-risk BSA/AML profile, management should provide a more robust program that specifically monitors and controls the higher risks that management and the board have accepted. ” 101

Jerome Walker - The AML Manual: Unanswered Questions and Challenges from the Regulatory Agency Community. 7. “Holding companies or lead financial institutions that implement an enterprise-wide BSA/AML compliance program should assess risk both individually within business lines and on a consolidated basis across all activities and legal entities. Aggregating risks on an enterprise-wide basis for larger or more complex organizations may enable an organization to better identify risks and risk exposures within and across specific lines of business or product categories. ” 102

Jerome Walker - The AML Manual: Unanswered Questions and Challenges from the Regulatory Agency Community. 8. “An effective BSA/AML compliance program controls risks associated with the bank’s products, services, customers, entities, and geographic locations; therefore, an effective risk assessment should be an ongoing process, not a one-time exercise. Management should update its risk assessment to identify changes in the bank’s risk profile, as necessary (e. g. , when new products and services are introduced, existing products and services change, high -risk customers open and close accounts, or the bank expands through mergers and acquisitions). Even in the absence of such changes, it is a sound practice for banks to periodically reassess their BSA/AML risks at least every 12 to 18 months. ” 103

Jerome Walker - The AML Manual: Unanswered Questions and Challenges from the Regulatory Agency Community. 9. “Examiners should determine whether the bank’s BSA/AML compliance program is adequate to appropriately mitigate the BSA/AML risks, based on the risk assessment. The existence of BSA/AML risk within the aggregate risk profile should not be criticized as long as the bank’s BSA/AML compliance program adequately identifies, measures, monitors, and controls this risk as part of a deliberate risk strategy. When the risks are not appropriately controlled, examiners must communicate to management and the board of directors the need to mitigate BSA/AML risk. ” 104

Jerome Walker - The AML Manual: Unanswered Questions and Challenges from the Regulatory Agency Community. 10. “The [Federal Reserve], [the FDIC] and [the OCC], each requires the U. S. branches, agencies, and representative offices of the foreign banks they supervise operating in the United States to develop written BSA compliance programs that are approved by their respective bank’s board of directors and noted in the minutes, or that are approved by delegatees acting under the express authority of their respective bank’s board of directors to approve the BSA compliance programs. “Express authority” means the head office must be aware of its U. S. AML program requirements and there must be some indication of purposeful delegation. ” 105

Jerome Walker - Section 312 Final Regulation: Special Due Diligence Programs for Certain Foreign Accounts On August 2, 2007, Fin. CEN finally issued final regulations to implement the enhanced due diligence requirements for correspondent accounts for certain foreign banks. See 31 C. F. R. 103. 176, http: //www. fincen. gov/31_CFR_Part_103_312_EDD_Rule. pdf. The new regulation requires covered financial institutions, at a minimum, to take reasonable steps to: 1. Conduct enhanced scrutiny of such correspondent accounts to guard against money laundering and to identify and report any suspicious transactions in accordance with applicable law and regulation. This enhanced scrutiny shall reflect the risk assessment of the account and shall include, as appropriate: i. Obtaining and considering information relating to the foreign bank’s AML program to assess the risk of money laundering presented by the foreign bank’s correspondent account; 106

Jerome Walker - Section 312 Final Regulation: Special Due Diligence Programs for Certain Foreign Accounts ii. Monitoring transactions to, from, or through the correspondent account in a manner reasonably designed to detect money laundering and suspicious activity; and iii. (A) Obtaining information from the foreign bank about the identity of any person with authority to direct transactions through any correspondent account that is a payable-through account, and the sources and beneficial owner of funds or other assets in the payable-through account. See 31 C. F. R. 103. 176(b). 2. Determine whether the foreign bank for which the correspondent account is established or maintained in turn maintains correspondent accounts for other foreign banks that use the foreign correspondent account established or maintained by the covered financial institution and, if so, take reasonable steps to obtain information relevant to assess and mitigate money laundering risks associated with the foreign bank’s correspondent accounts for other foreign banks, including, as appropriate, the identity of those foreign banks. See 31 C. F. R. 103. 176(b). 107

Jerome Walker - Section 312 Final Regulation: Special Due Diligence Programs for Certain Foreign Accounts 3. (i) Determine, for any correspondent account established or maintained for a foreign bank whose shares are not publicly traded, the identity of each owner of the foreign bank and the nature and extent of each owner’s ownership interest. See 31 C. F. R. 103. 176(b). The due diligence procedures are required for any correspondent account maintained for a foreign bank that operates under: a. An offshore banking license; b. A banking license issued by a foreign country that has been designated as non-cooperative by the Financial Action Task Force; or c. A banking license issued by a foreign country that has been designated by the Secretary as warranting special measures due to money laundering concerns. See 31 C. F. R. 103. 176 (c ). 108

Jerome Walker - Section 312 Final Regulation: Special Due Diligence Programs for Certain Foreign Accounts The due diligence program shall include procedures to be followed in circumstances in which a covered financial institution cannot perform appropriate due diligence or enhanced due diligence with respect to a correspondent account, including when the covered financial institution should refuse to open the account, suspend transaction activity, file a SAR, or close the account. See 31 C. F. R. 103. 176(d). 109

Jerome Walker - Section 312 Final Regulation: Special Due Diligence Programs for Certain Foreign Accounts The final rule revises 31 C. F. R. 103. 176(e) and adds new section (f) to reflect the applicability dates. “The Second Proposed Rule did not address the issue of applicability dates. We are mindful, however, of the obligations that will result from the statutory requirement that enhanced due diligence apply to all correspondent accounts maintained for certain foreign banks, regardless of when the accounts were opened. Effective 180 days after the date of publication of this final rule, the requirements of this final rule will apply to correspondent accounts opened on or after that date. Effective 270 days after the date of publication of this final rule, the rule’s requirements will apply to all correspondent accounts opened prior to the date that is 180 days after the date of publication of this final rule. Section 103. 176(f)(2) contains a special implementation rule for banks. ” 110

Jerome Walker - Section 312 Final Regulation: Special Due Diligence Programs for Certain Foreign Accounts “This special implementation rule requires banks that have been subject to the provisions of our interim final rule to continue to comply with the existing enhanced due diligence requirements for correspondent accounts of section 312 until the effective dates described in section 103. 176(f)(1) are triggered. Section 103. 176(f)(3) contains a special implementation rule for all other covered financial institutions. This section provides that securities broker dealers, futures commission merchants, introducing brokers, mutual funds, and trust banks or trust companies that have a federal regulator are not required to comply with the enhanced due diligence provisions until the effective dates described in section 103. 176(f)(1) are triggered. ” 111

Daniel Seikaly and Jerome Walker – Trends and Developments from the Law Enforcement Community. A review of trends and developments in 2007 and 2006 in the law enforcement community (e. g. , Fin. CEN, OFAC, DOJ, District Attorneys, police departments and the Drug Enforcement Agency (the “DEA”)), suggests greater AML/CT Challenges in 2008 for commercial and investment banks. Fin. CEN and DOJ are now more likely to second guess commercial and investment banks based upon information law enforcement has and based upon action law enforcement believes commercial and investment banks should have taken notwithstanding evidence that the cost might have been prohibitive or the commercial or investment did not have sufficient information. 112

Daniel Seikaly and Jerome Walker – Trends and Developments from the Law Enforcement Community. An enforcement action will typically be based upon information and determinations from examiners, information from law enforcement and information from the intelligence community. Fin. CEN will typically focus on the “law enforcement Program” requirement set forth in 31 C. F. R. 103. 120, the CIP requirement, the SAR requirement, the recordkeeping and filing requirements and the due diligence requirements in 31 C. F. R. 103. 176, 31 C. F. R. 103. 177, 31 C. F. R. 103. 178, 31 U. S. C. 5318(h)(1) and 31 U. S. C. 5322. The “law enforcement Program” requirement and the other requirements used by Fin. CEN are essentially the same requirements as the commercial banking agency community. While DOJ has historically used the AML requirements set forth in Title 31 either in the Code of Federal Regulation or the United States Code or Title 18 of the United States Code, especially 18 U. S. C. 1956 and 1957, it now uses the same laws as Fin. CEN and the banking agencies. These laws are typically viewed as civil, not criminal laws. 113

Daniel Seikaly and Jerome Walker – Trends and Developments from the Law Enforcement Community. While Fin. CEN makes public statements and issues alerts and other helpful documents, it is difficult to determine when Fin. CEN will take an enforcement action outside of one that already is anticipated or commenced by a banking agency when a bank is involved. DOJ normally follows very closely its United States Attorneys’ Manual on criminal law matters. See http: //www. usdoj. gov/usao/eousa/foia_reading_room/usam/title 9/105 mcrm. htm OFAC has historically used a strict liability standard and local District Attorneys rely on state criminal laws, including state money laundering laws. See, for example, Article 470 of the New York Penal Law, which covers money laundering and money laundering in support of terrorism. http: //public. leginfo. state. ny. us/menugetf. cgi? COMMONQUERY =LAWS 114

Seikaly and Walker – AML Enforcement Actions by Fin. CEN in 2007 (Union Bank of California). 8. During 2007 Fin. CEN completed at least two AML enforcement actions against financial institutions: A. In the Matter of Union Bank of California, N. A. , San Francisco, California, Assessment of Civil Money Penalty, No. 2007 -02 (September 14, 2007), http: //www. fincen. gov/ASSESSMENT_In_the_Matter_of_Union_ Bank_of_California. pdf Fin. CEN imposed a $10 million civil money penalty against the bank. Enforcement actions were also taken by the OCC and DOJ. The $10 million requirement by Fin. CEN and the OCC must be paid only once rather than $20 million. Fin. CEN indicated that its action was based upon a violation of one of the “law enforcement Program” deficiencies, SAR reporting deficiencies, systems deficiencies and other internal control failures. Many of the bank’s problems related to casas de cambio. 115

Seikaly and Walker – AML Enforcement Actions by Fin. CEN in 2007 (American Express). B. In the Matter of America Express Bank International, Miami, Florida, American Express Travel Related Services Company , Inc. , Salt Lake City, Utah, Assessment of Civil Money Penalty, No. 20071 (August 3, 2007), http: //www. fincen. gov/fincen_amex. pdf Fin. CEN imposed a $25 million civil money penalty against American Express. Enforcement actions were also taken by the Federal Reserve and DOJ. The $25 million requirement by Fin. CEN and the Federal Reserve was required to be paid only once rather than $50 million. $20 million was allocated to American Express Bank International and $5 million to American Express Travel Related Services Company, Inc. Fin. CEN indicated that its action was based upon the “law enforcement Program” deficiencies, SAR reporting deficiencies, systems deficiencies, and other internal control failures. Many of American Express’s problems related to its Latin America customer base and private investment companies, money service businesses and bearer share accounts. 116

Seikaly and Walker – AML Enforcement Actions by Fin. CEN in 2006 (Beach Bank). 9. During 2006 Fin. CEN completed at least nine AML/CT enforcement actions against financial institutions: A. In the Matter of Beach Bank, Miami Beach, Florida, Assessment of Civil Money Penalty, No. 2006 -9 (December 27, 2006), http: //www. fincen. gov/beachbank. pdf Fin. CEN imposed an $800, 000 civil money penalty against the bank. Enforcement actions were also taken by the Florida Banking Department and the FDIC. The $800, 000 requirement by Fin. CEN and the banking agencies were required to be paid only once rather than $1, 600, 000. Fin. CEN indicated that its action was based upon a violation of one of the “law enforcement Program” deficiencies, SAR reporting deficiencies, systems deficiencies and other internal control failures. Many of the bank’s problems related to its accounts with money service businesses and foreign correspondent banks. 117

Seikaly and Walker – AML Enforcement Actions by Fin. CEN in 2006 (The Foster Bank). B. In the Matter of The Foster Bank, Chicago, Illinois, Assessment of Civil Money Penalty, No. 2006 -8 (December 14, 2006), http: //www. fincen. gov/foster. pdf Fin. CEN imposed a $2 million civil money penalty against the bank. Enforcement actions were also taken by the Florida Banking Department and the FDIC. Fin. CEN indicated that its action was based upon a violation of one of the “law enforcement Program” deficiencies, structuring, SAR reporting deficiencies, systems deficiencies and other internal control failures. Many of the bank’s problems related to its money service business accounts. The bank was also located in a High Intensity Drug Trafficking Area (“HIDTA”) and a High Risk Money Laundering and Related Financial Crimes Area (“HIML”). One of the bank’s customers wired millions from primarily cash deposits to beneficiaries in Pakistan, India and the United Arab Emirates. Each country was a Jurisdiction of Primary Concern. 118

Seikaly and Walker – AML Enforcement Actions by Fin. CEN in 2006 (Israel Discount Bank of New York). C. In the Matter of Israel Discount Bank of New York, Assessment of Civil Money Penalty, No. 2006 -7 (October 31, 2006), http: //www. fincen. gov/fincen_assessment_of_civil_money_pen alty. pdf Fin. CEN imposed a $12 million civil money penalty against the bank. Enforcement actions were also taken by the Banking Department, the FDIC and the New York County District Attorney. Fin. CEN indicated that its action was based upon a violation of one of the “law enforcement Program” deficiencies, SAR reporting deficiencies, systems deficiencies and other internal control failures. Many of the bank’s problems related to its Latin America private banking customer base, including unlicensed money service businesses and shell companies accounts, especially with respect to wire transfers. 119

Seikaly and Walker – AML Enforcement Actions by Fin. CEN in 2006 (Deprez’s Quality Jewelry and Loans). D. In the Matter of Deprez’s Quality Jewelry and Loans, Inc. , Louisville, Kentucky, Assessment of Civil Money Penalty, No. 20066 (July 20, 2006), http: //www. fincen. gov/deprez_assessment_07202006. pdf Fin. CEN imposed a $25, 000 civil money penalty against the money service business based upon the results of an Internal Revenue Service examination. The company did not register with Fin. CEN in a timely manner and its AML program had significant “law enforcement Program” deficiencies and problems with structuring. Fin. CEN concluded that the company was reckless in its disregard for the AML requirements. 120

Seikaly and Walker – AML Enforcement Actions by Fin. CEN in 2006 (Liberty Bank of New York). E. In the Matter of Liberty Bank of New York, Assessment of Civil Money Penalty, No. 2006 -5 (May 18, 2006), http: //www. fincen. gov/liberty_assessment. pdf Fin. CEN imposed a $600, 000 civil money penalty against the bank. Enforcement actions were also taken by the Banking Department and the FDIC. Fin. CEN indicated that its action was based upon violations of the “law enforcement Program” deficiencies, SAR reporting deficiencies, insufficient responses to law enforcement requests, systems deficiencies and other internal control failures. Many of the bank’s problems related to its customers with cashintensive businesses, especially with respect to wire transfers. The $600, 000 penalty was allocated $300, 000 each to the Banking Department and the FDIC. 121

Seikaly and Walker – AML Enforcement Actions by Fin. CEN in 2006 (Frosty Food Mart). F. In the Matter of Frosty Food Mart, Tampa, Florida, Assessment of Civil Money Penalty, No. 2006 -4 (May 9, 2006), http: //www. fincen. gov/frosty_cmp_consent. pdf Fin. CEN imposed a $10, 000 civil money penalty against the money service business based upon the results of an Internal Revenue Service examination. The company’s AML program had significant “law enforcement Program” deficiencies. Fin. CEN concluded that the company was reckless in its disregard for the AML requirements. Many of the company’s problems were caused by its check cashing operation. The company operated in a location designated as a HIDTA. 122

Seikaly and Walker – AML Enforcement Actions by Fin. CEN in 2006 (Bank. Atlantic). G. In the Matter of Bank. Atlantic, Fort Lauderdale, Florida, Assessment of Civil Money Penalty, No. 2006 -3 (April 6, 2006), http: //www. fincen. gov/bankatlantic_assessment. pdf Fin. CEN imposed a $10 million civil money penalty against the association based upon findings of the Office of Thrift Supervision (“OTS”) and violations of “law enforcement Program” deficiencies, SAR reporting deficiencies, systems deficiencies and other internal control failures. Many of the savings association’s problems related to its wire transfer operations and domestic and international pouch activity, and its high net worth customer base. It is also located in a HIDTA and HIML. Its customers included nonresident aliens, offshore businesses, casa de cambio, foreign unlicensed money service businesses, consulates and politically exposed persons. Fin. CEN indicated that “Black Market Pesos Exchange” transactions may have been involved. Enforcement actions were also taken by OTS and DOJ. 123

Seikaly and Walker – AML Enforcement Actions by Fin. CEN in 2006 (Metropolitan Bank and Trust Company). H. In the Matter of Metropolitan Bank and Trust Company, New York Branch, New York, Assessment of Civil Money Penalty, No. 2006 -2 (April 18, 2006), http: //www. fincen. gov/metro_assessment. pdf Fin. CEN imposed a $150, 000 civil money penalty against the bank based upon findings of the OCC and violations of “law enforcement Program” deficiencies, SAR reporting deficiencies, systems deficiencies and other internal control failures. Many of the bank’s problems related to its handling of compliance matters for its money service business affiliate, Metro Remittance Center, Incorporated. Problems arose with respect to pouch activity, payable upon proper identification activity and wire transfer activity. The bank also used ineffective manual controls and inadequate software. An enforcement action was also taken by the OCC. 124

Seikaly and Walker – AML Enforcement Actions by Fin. CEN in 2006 (The Tonkawa Tribe of Oklahoma). I. In the Matter of The Tonkawa Tribe of Oklahoma, Tonkawa, Oklahoma and Edward E. Street, Tonkawa, Oklahoma, Assessment of Civil Money Penalty, No. 2006 -1 (March 24, 2006), http: //www. fincen. gov/tonkawa. pdf Fin. CEN imposed a $1 million civil money penalty against the casino and a $1. 5 million against one of its partners based upon significant “law enforcement Program” deficiencies and illegal activity. For example, “with respect to transfers of funds between accounts of agents and principals, Street conceded that the casino never questioned the transfers. ” 125

Seikaly and Walker – AML Enforcement Actions by Fin. CEN in 2006 (The Tonkawa Tribe of Oklahoma). In addition, Fin. CEN asserted that “in 2005, federal authorities indicted the agents on charges of money laundering, racketeering, and the operation of an illegal gaming business. The indictment alleged ties between the agents and an organized crime family, and alleged that some of the activities at issue involved the off-track betting operation at Tonkawa Bingo and Casino. Street knew or clearly should have known- of investigations by law enforcement into the activities of these agents. A number of years prior to the indictment, Street had received one or more subpoenas, notices, or similar communications from law enforcement. These transactions exhibited patterns and other characteristics similar –if not identical – to those of transactions by the agents federal authorities indicted. ” 126

Seikaly and Walker – AML Enforcement Actions by Fin. CEN To help the industry, Fin. CEN recently released a document to identify common errors on SARs and to document SARs correctly. See http: //www. fincen. gov/SAR_Common_Errors_Web_Posting. pdf and http: //www. fincen. gov/Supporting_Documentation_Guidance. p df The Financial Action Task Force also recently issued Guidance on the Risk Based Approach to Combating Money Laundering and Terrorist Financing (June 2007) http: //www. fatfgafi. org/dataoecd/43/46/38960576. pdf and AML/CFT Evaluations and Assessments (June 2007) http: //www. fatfgafi. org/dataoecd/5/59/38893482. pdf 127

Seikaly and Walker – AML Enforcement Actions by DOJ in 2007 (Lloyds TSB Bank Plc and Bank of Cyprus). 10. During 2007 DOJ commenced or completed at least three AML enforcement actions against financial institutions: A. United States of America, plaintiff v. Lloyds TSB Bank and Bank of Cyprus, defendants, United States District Court for the Southern District of New York, New York Diego filed October 15 18, 2007, http: //www. usdoj. gov/usao/nys/pressreleases/October 07/Lloyds, %2 0 Bank%20 of%20 Cyprus%20 PR. pdf “MICHAEL J. GARCIA, the United States Attorney for the Southern District of New York, announced that the United States filed civil money laundering charges today against Lloyds TSB Bank and Bank of Cyprus, alleging that both permitted the laundering of hundreds of millions of dollars generated by the Aremis. Soft securities fraud. ” (at least $130 million from Lloyds TSB and at least $162 million from Bank of Cyprus)” 128

Seikaly and Walker – AML Enforcement Actions by DOJ in 2007 (Union Bank of California, N. A. ). B. United States of America, plaintiff v. Union Bank of California, N. A. , defendant, Deferred Prosecution Agreement, No. 07 CR 2566 W, United States District Court for the Southern District of California, Sand Diego filed September 18, 2007, http: //www. usdoj. gov/opa/pr/2007/September/07_crm_726. html The Deferred Prosecution Agreement provides, among other things, that: i. DOJ, Criminal Division, Asset Forfeiture and Money Laundering Section (“AFMLS”) and DEA determined that the bank’s AML/CT violations allowed certain customers to launder millions of dollars of proceeds through the bank over an extended period. 129

Seikaly and Walker – AML Enforcement Actions by DOJ in 2007 (Union Bank of California, N. A. ). ii. Investigators identified specific accounts maintained at the bank that were used to launder at least $26 million of drug proceeds by and through accounts controlled by licensed Mexican casas de cambio. iii. The bank is in a HIDTA and an HIML. iv. The investigation of the bank’s handling of Mexican casas de cambio accounts resulted from evidence obtained from U. S. and international undercover operations that documented the export of multi-ton quantities of cocaine from Columbia to Mexico for transshipment to the U. S. and Europe. Investigators traced the flow of the drug proceeds in the form of bulk shipments of US Dollars and euros to a few Mexican casas de cambio working in concert with one another or to the direct deposit of drug proceeds to accounts held by the casas de cambio in Spain. The proceeds were shipped or wired to bank accounts of the casas de cambio at the bank. 130

Seikaly and Walker – AML Enforcement Actions by DOJ in 2007 (Union Bank of California, N. A. ). v. The following “red flags” were found at the bank by law enforcement: 1. Unusual bulk cash deposits. 2. Unsupported liquidity transfers. 3. Unusual originators of incoming wire transfers. 4. Unexplained pouch deposits. 5. Sequential and structured monetary instruments. 6. Structured wire transfers. 7. Undocumented related accounts. 8. “Smurf marks” on checks. 131

Seikaly and Walker – AML/CT Enforcement Actions by DOJ in 2007 (American Express Bank International). C. United States of America, plaintiff v. American Express Bank International, defendant, Deferred Prosecution Agreement, No. 07 20602 -CR-ZLOCH/SNOW, United States District Court for the Southern District of Florida, Miami filed August 6, 2007, http: //www. usdoj. gov/dea/pubs/states/newsrel/wdo 080607_atta chment. pdf The Deferred Prosecution Agreement provides, among other things, that: i. AFMLS and DEA determined that the bank’s AML/CT violations allowed millions of dollars of financial transactions from the sale of illegal narcotics to be conducted by others through the bank over an extended period. DOJ and the bank settlement for $55 million. 132

Seikaly and Walker – AML/CT Enforcement Actions by DOJ in 2007 (American Express Bank International). ii. Investigators have identified specific Targeted Accounts which they believe were used to launder more than $55 million of drug proceeds by and through the "Black Market Peso Exchange. " In addition to the Targeted Accounts, investigators identified numerous other private banking accounts that were controlled by apparently legitimate South American businesses, but held in the names of offshore shell corporations and used to process “parallel currency exchange market” transactions originating from South American “parallel currency exchange markets” are saturated with drug proceeds and represent a high risk of money laundering to financial institutions around the world, particularly U. S. based financial institutions. Despite knowing of this risk, the bank allowed certain customers to use accounts at the bank to process such transactions even though the bank had little ability to monitor or control the transactions in these accounts. 133

Seikaly and Walker – AML/CT Enforcement Actions by DOJ in 2007 (American Express Bank International). iii. The Black Market Peso Exchange is a trade-based money laundering system through which South American "money brokers" facilitate a non-regulated currency exchange of U. S. dollars for local South American currency. The money broker stands between South American drug cartels on one side, and South American importers on the other. The drug cartels, particularly in Colombia, hold large quantities of U. S. dollars derived from retail drug trafficking in the U. S. that they need to convert into local currency (i. e. , Colombian pesos) for their illicit use in South America. On the other side, South American businesses often require U. S. dollars to pay for imported goods or services, but to avoid government scrutiny, import duties, sales and income taxes, red tape, and the often less-favorable exchange rates associated with the official currency exchange mechanisms, they seek to purchase these dollars from an "unregulated exchange. " 134

Seikaly and Walker – AML/CT Enforcement Actions by DOJ in 2006 (Bank. Atlantic). 11. During 2006 DOJ completed at least one AML/CT enforcement actions against financial institutions: A. United States of America, plaintiff v. Bank. Atlantic, defendant, Deferred Prosecution Agreement, United States District Court for the Southern District of Florida, Fort Lauderdale filed April 25, 2006, http: //www. usdoj. gov/criminal/pr/press_releases/2006/04/2006_ 4567_2_CRM_06 -248_bankatlantic_DPA. pdf The Deferred Prosecution Agreement provides, among other things, that DOJ could institute a criminal or civil forfeiture action against certain funds laundered through certain accounts. In excess of $10 million may have been involved in transactions in accounts in violation of 18 U. S. C. 1956, 1957, and 1960 and at least some or all funds deposited in such accounts could be forfeitable pursuant to 18 U. S. C. 981 and 982. DOJ and the bank agreed to settle for $10 million. 135

Seikaly and Walker – A Special Note About DOJ and Deferred Prosecution Agreements with Banks. While many may be alarmed by deferred prosecution agreements, there is nothing new about this tactic. DOJ views this tactic as an alternative resolution. See Christopher A. Wray, Assistant Attorney General, Criminal Division, Remarks to the ABA White Collar Crime Luncheon, University Club, Washington, D. C. (February 25, 2005) http: //www. usdoj. gov/criminal/pr/speeches/2005/02/2005_3853_ rmrk. Crim. Luncheon 030205. pdf “Just as companies can demonstrate true cooperation in different ways, we’re encouraging prosecutors to develop flexible and innovative approaches as they work to ensure that companies accept responsibility and cooperate with us. In certain cases, an alternative resolution––like a deferred prosecution or even a nonprosecution agreement––can strike that balance. ” 136

Seikaly and Walker – A Special Note About DOJ and Deferred Prosecution Agreements with Banks. “One option we’ve used increasingly is the deferred prosecution agreement, which some people describe as pretrial diversion. We file charges, but agree to defer prosecution for a year, two years, or even longer. In return, the company agrees to cooperate fully and admits publicly the facts of its misconduct. It also typically makes a payment, which can be structured as a fine, restitution, forfeiture, or some other category. We can also require the company to take remedial actions to make sure the conduct doesn’t happen in the future. ” 137

Seikaly and Walker – A Special Note About DOJ and Deferred Prosecution Agreements with Banks. “If the company complies with the agreement, the charges are dismissed at the end of the term. If not, we go to trial, now armed with the company’s admission and all the evidence we obtained from its cooperation. In other words, if the company violates the agreement, its conviction is virtually a foregone conclusion. The DP structure has many of the same benefits as a conviction. In terms of remedies, anything that the judge could impose under the organizational sentencing guidelines can be required under a DP agreement. The DP won’t result in a criminal conviction if the defendant complies with the agreement, but filing charges publicly condemns the company’s conduct. ” 138

Seikaly and Walker – A Special Note About DOJ and Deferred Prosecution Agreements with Banks. “DOJ has used deferred prosecution agreements with banks for a number of years. “Let me wind up by touching briefly on another set of cases to which the Department––and the public––have been paying greater attention recently. Over the past two years, the Department has pursued criminal charges against five banks for failing to safeguard against money laundering or to report suspicious financial transactions to the Government. The most recent, of course, was the guilty plea we secured from Riggs Bank itself, right here in DC. I want to make a couple of points about these cases. First, contrary to the perception of some in the banking industry, the Department is not filing criminal charges against banks for simply neglecting to report one or two suspicious transactions. We’re not prosecuting for negligence. Rather, the cases we’ve brought were triggered by egregious failures, over periods of years, to perform a minimal level of due diligence. ” 139

Seikaly and Walker – A Special Note About DOJ and Deferred Prosecution Agreements with Banks. “For example, from 1995 through 1998, the Banco Popular in Puerto Rico allowed drug dealer Roberto Ferrario to launder about $32 million in cash drug proceeds. The bank believed Ferrario’s story that he ran a telephone service business two doors down from the bank branch he used, but never walked down the street to see where all this money was coming from. The bank failed to report huge cash deposits––at times over $500, 000 a day––that took tellers hours to process. The bank didn’t file a Suspicious Activity Report until February 1998, after about $21 million of narcotics proceeds had been laundered at one branch. ” 140

Seikaly and Walker – A Special Note About DOJ and Deferred Prosecution Agreements with Banks. “Another example: Over a two-year period, several drug trafficking organizations used Broadway National Bank in New York to launder their money. The drug dealers used accounts opened by several front businesses located within a few blocks of the bank branch. Just a short walk and a look-see would have confirmed that these small businesses couldn’t have generated all of the cash being deposited. Broadway failed to report suspicious transactions involving hundreds of bulk cash deposits totaling more than $46 million and thousands of structured deposits of more than $76 million in cash into more than 100 separate accounts. ” 141

Seikaly and Walker – A Special Note About DOJ and Deferred Prosecution Agreements with Banks. “Now, given that most banks are good corporate citizens, this sort of behavior should outrage the rest of industry. Banks like the ones I just mentioned have completely and unfairly abandoned their legal obligations, unlike most of their peers (and competitors) that take these responsibilities very seriously. In the Broadway case, for example, when the agents asked a drug trafficker why he laundered his drug proceeds through Broadway, the traffickers said that at Broadway, “they didn’t ask any questions. ” Prosecuting these rogue banks helps to level the industry’s playing field. ” 142

Seikaly and Walker – A Special Note About DOJ and Deferred Prosecution Agreements with Banks. “These examples also illustrate my second point: Strengthening safeguards against money laundering is critical to fighting other types of crime. Congress didn’t pass the relevant statutes, and we don’t enforce them, to just annoy the banking industry. Rather, we do so because it makes life harder for the people who need to launder money: drug dealers, terrorists, and others like them. The one thing that all of these bad guys need is money. Terrorists need it to pay rent, book airplane tickets, rent cars, secure identification, build bombs, and so on. That’s why our efforts to clamp down on terrorist financing are so important, and getting banks to remain vigilant and cooperative is just another part of that fight. As I’ve said often when speaking to audiences about the Department’s efforts to fight terrorism, we’d much rather catch a terrorist with his hands on a check than on a bomb. ” 143

Seikaly and Walker – A Special Note About DOJ and Deferred Prosecution Agreements with Banks. Some of the past deferred prosecution agreements with banks include: 1. United States of America, plaintiff v. Riggs Bank, defendant, Deferred Prosecution Agreement, United States District Court for the District of Columbia, Washington, D. C. filed January 26, 2005. ($16 million) See http: //www. usdoj. gov/tax/usaopress/2005/txdv 050530. html 2. United States of America, plaintiff v. Am. South Bancorporation and Am. South Bank, defendant, Deferred Prosecution Agreement, United States District Court for the Southern District of Mississippi filed October 28, 2004. ($40 million) 3. United States of America, plaintiff v. Delta National Bank & Trust Company, defendant, Deferred Prosecution Agreement, United States District Court for the District of Maryland, filed in October 1, 2003. ($950, 000) 144

Seikaly and Walker – A Special Note About DOJ and Deferred Prosecution Agreements with Banks. 4. United States of America, plaintiff v. Banco Popular de Puerto Rico, defendant, Deferred Prosecution Agreement, United States District Court for the District of Puerto Rico, filed January 13, 2003. ($21. 6 million) See http: //www. usdoj. gov/opa/pr/2003/January/03_crm_024. htm 5. United States of America, plaintiff v. Broadway National Bank, defendant, Deferred Prosecution Agreement, United States District Court for the Southern District of New York, New York filed November 27, 2002. ($4 million) District Attorneys have also used state AML laws against financial institutions. See Bank of American Corporation and New York County District Attorney (Press Release September 27, 2006) http: //www. manhattanda. org/whatsnew/index. htm 145

Seikaly and Walker – A Special Note on AML/CT Civil Forfeitures by DOJ against Financial Institutions. AFMLS handles the AML/CT civil forfeitures brought by DOJ against financial institutions. See http: //www. usdoj. gov/jmd/afp/ AFMLS uses 18 U. S. C. 981 as its basis for civil forfeitures. 18 U. S. C. 981 provides, in relevant part, that the following property is subject to forfeiture: 1. Any property, real or personal, involved in a transaction or attempted transaction in violation of 18 U. S. C. 1956, 1957 or 1960, or any property traceable to such property. 2. Any property, real or personal, within the jurisdiction of the United States, constituting, derived from, or traceable to, any proceeds obtained directly or indirectly from an offense against a foreign nation, or any property used to facilitate such an offense, if the offense involves the manufacture, importation, sale, or distribution of a controlled substance, or any other conduct described in 18 U. S. C. 1956 (c)(7)(B); see http: //www. law. cornell. edu/uscode/html/uscode 18/usc_sec_18_0000 0981 ----000 -. html 146

Seikaly and Walker – A Special Note on AML/CT Civil Forfeitures by DOJ against Financial Institutions. AFMLS has been particularly assertive regarding interbank accounts that are subject to 18 U. S. C. 981(k). Section 981(k) provides, in relevant part, that for purpose of a forfeiture if funds are deposited into an account at a foreign bank, and that foreign bank has an interbank account in the United States with a covered financial institution, the funds shall be deemed to have been deposited into the interbank account in the United States, and any restraining order, seizure warrant, or arrest warrant in rem regarding the funds may be served on the covered financial institution, and funds in the interbank account, up to the value of the funds deposited into the account at the foreign bank, may be restrained, seized, or arrested. 147

Seikaly and Walker – A Special Note on District Attorney Actions against Banks based upon State AML Laws. District Attorneys have also used state AML laws against financial institutions: 1. Bank of American Corporation and New York County District Attorney (Press Release September 27, 2006) http: //www. manhattanda. org/whatsnew/index. htm, 2. Israel Discount Bank of New York (Press Release December 16, 2005) http: //www. manhattanda. org/whatsnew/press/IDBNY%20 settle ment. pdf 3. Hudson United Bank (Press Release March 2, 2004) 148

Seikaly and Walker – CT Enforcement Actions by OFAC in 2007 (National Australia Bank Ltd. ). 12. During 2007 OFAC completed at least seven CT enforcement actions against financial institutions: A. OFAC imposed a $100, 00 penalty against National Australia Bank Ltd. (made public on September 10, 2007) for violations of the Burmese Sanctions Regulations, Sudanese Sanctions Regulations and Cuban Assets Control Regulations. Some of the transactions were processed through the New York Branch, but the majority were processed through correspondent accounts held at other U. S. banks. Due to the significant remediation taken by the bank, including major upgrades to its worldwide compliance policies, as well as the fact that the violations were voluntarily disclosed, OFAC mitigated the potential penalties for these transactions by nearly 90%. See http: //www. treas. gov/offices/enforcement/ofac/civpen/penalties/ 09072007. pdf 149

Seikaly and Walker – CT Enforcement Actions by OFAC in 2007 (Lakes Community Credit Union). B. OFAC imposed a $1, 484 penalty against Lakes Community Credit Union (made public on September 10, 2007) for violations of the Cuban Asset Control Regulations. OFAC alleged that the credit union initiated a transaction incident to Cuba travel. The credit union did not voluntarily disclose this matter to OFAC. See http: //www. treas. gov/offices/enforcement/ofac/civpen/penalties/ 09072007. pdf 150

Seikaly and Walker – CT Enforcement Actions by OFAC in 2007 (GE Security). C. OFAC imposed a $1, 900 penalty against GE Security (made public on September 10, 2007) for violations of the Cuban Assets Control Regulations by one of its wholly-owned foreign subsidiaries. OFAC alleged that the foreign subsidiary acted without an OFAC license by exporting goods and services to Cuba. The foreign subsidiary voluntarily disclosed this matter to OFAC. See http: //www. treas. gov/offices/enforcement/ofac/civpen/penalties/ 09072007. pdf 151

Seikaly and Walker – CT Enforcement Actions by OFAC in 2007 (American Express Travel Related Services). D. OFAC imposed a $16, 625 penalty against American Express Travel Related Services Co. , Inc. (made public on August 10, 2007) for violations of the Cuban Assets Control Regulations by American Express Company (Mexico), a wholly-owned subsidiary. OFAC alleged that American Express Company (Mexico) made sales of group travel related packages to Cuba. American Express Travel Related Services voluntarily disclosed this matter to OFAC. See http: //www. treas. gov/offices/enforcement/ofac/civpen/penalties/ 08102007. pdf 152

Seikaly and Walker – CT Enforcement Actions by OFAC in 2007 (American Bankers Life Assurance Company). E. OFAC imposed a $1, 271. 50 penalty against American Bankers Life Assurance Company of Florida, Miami, Florida (made public on July 11, 2007) for violations of the Narcotics Trafficking Sanctions Regulations by processing premium payments on insurance policies on the lives of two persons who have been named as Specially Designated Narcotics Traffickers. The insurance company voluntarily disclosed this matter to OFAC. See http: //www. treas. gov/offices/enforcement/ofac/civpen/penalties/ 07112007. pdf 153

Seikaly and Walker – CT Enforcement Actions by OFAC in 2007 (Fleet National Bank/Suretrade, Inc. ). F. OFAC imposed a $7, 277 penalty against Suretrade, Inc. , New York (made public on May 4, 2007) for violations of the Iranian Transactions Regulations by acting without an OFAC license or outside the scope of its license by operating an account for a person located in Iran. This matter was not the subject of a voluntary disclosure to OFAC. See http: //www. treas. gov/offices/enforcement/ofac/civpen/penalties/ 05042007. pdf 154

Seikaly and Walker – CT Enforcement Actions by OFAC in 2007 (Kinecta Federal Credit Union). G. OFAC imposed a $3, 102 penalty against Kinecta Federal Credit Union, Manhattan Beach, California (made public on April 6, 2007) for violations of the Cuban Assets Control Regulations by acting without an OFAC license or outside the scope of its license by initiating a funds transfer destined for a Cuban national. Kinecta did not voluntarily disclose this matter to OFAC. See http: //www. treas. gov/offices/enforcement/ofac/civpen/penalties/ 04042007. pdf 155

Seikaly and Walker – CT Enforcement Actions by OFAC in 2006 (Chevy Chase Bank). 13. During 2006 OFAC completed at least two CT enforcement actions against financial institutions: A. OFAC imposed a $3, 352. 86 penalty against Chevy Chase Bank, Bethesda, Maryland (made public on June 7, 2006) for violations of the Iranian Transactions Regulations by processing an unauthorized funds transfer with payment information referencing services of Iranian origin. Chevy Chase did not voluntarily disclose this matter to OFAC. See http: //www. treas. gov/offices/enforcement/ofac/civpen/penalties/ 05052006. pdf 156

Seikaly and Walker – CT Enforcement Actions by OFAC in 2006 (Downey Savings Bank). B. OFAC imposed a $44, 898. 65 penalty against Downey Savings Bank, Newport Beach, California (made public on June 7, 2006) for violations of the Iranian Transactions Regulations by operated 23 accounts for 20 account holders who informed Downey of their permanent residence in Iran. Downey has reported to OFAC corrective measures and improvements to its OFAC compliance program. Downey voluntarily disclosed this matter to OFAC. See http: //www. treas. gov/offices/enforcement/ofac/civpen/penalties/ 05052006. pdf 157

Seikaly and Walker - Unanswered Questions and Challenges from the Law Enforcement Community. Though Fin. CEN and OFAC played important roles in drafting the AML Manual and its updates, unanswered questions remain regarding, among other things: 1. Does Fin. CEN use a strict liability standard when law enforcement or the intelligence community believe a violation of the criminal law has occurred? 2. Does Fin. CEN defer to other law enforcement and the intelligence community too much in the context of enforcement actions? 3. Is DOJ displacing the regulatory agency community and playing a supervisory role when deferred prosecution and other agreements are signed with DOJ? 4. Do law enforcement agencies grant sufficient weight to the AML Manual when contemplating a fine or penalty? 158

Seikaly and Walker - Unanswered Questions and Challenges from the Law Enforcement Community. 5. Do law enforcement agencies place too much emphasis on violations of law when the primary requirement is to implement and maintain a program which is designed to detect and prevent AML/CT violations? In other words, does law enforcement place too much emphasis on the result (e. g. , money laundering or other illegal activity occurred and the proceeds entered the financial system) rather than on the process developed to limit the likelihood or at least make it more difficult for proceeds of illegal activity to enter the financial system? 6. Should law enforcement and the intelligence community bear more of the burden of keeping financial institutions informed directly rather than having financial institutions attempt to read “between the lines” based upon issuances coming from Fin. CEN? 159

Daniel Seikaly – Trends and Developments from the Intelligence Community. A review of trends and developments in 2007 and 2006 in the intelligence community (e. g. , the Federal Bureau of Investigation (the “FBI”), the Central Intelligence Agency (the “CIA”), the Department of Homeland Security (“Homeland Security”) and other intelligence agencies)), suggests greater AML/CT Challenges in 2008 for commercial and investment banks. At the Federal level, there are numerous intelligence units. See An Overview of the United States Intelligence Community (2007) at http: //www. dni. gov/who_what/061222_DNIHandbook_Final. pdf. While there have been a number of important reports recently issued by the intelligence community, the most important contribution the intelligence community can provide to financial institutions is to provide more detailed data on illegal activity in the financial system and provide guidance on how a financial institution might establish an effective FIU. 160

Daniel Seikaly – Trends and Developments from the Intelligence Community. Some of the reports include: 1. The National Counterintelligence Strategy of the United States of America (2007) http: //www. dni. gov/reports/NCIX_Strategy_2007. pdf 2. The 2006 Annual Report of the United States Intelligence Community (February 2007) http: //www. dni. gov/electronic_reading_room/2006 Annual. Report to. Congress. pdf 3. Report on the Progress of the Director of National Intelligence in Implementing the Intelligence Reform and Terrorism Prevention Act of 2004 (May 2006) http: //www. dni. gov/reports/CDA_14 -252004_report. pdf 161

Daniel Seikaly – Trends and Developments from the Intelligence Community. 4. National Intelligence Estimate: The Terrorist Threat to the United States Homeland (July 2007) http: //www. dni. gov/press_releases/20070717_release. pdf 5. Declassified Key Judgments of the National Intelligence Estimate “Trends in Global Terrorism: Implications for the United States” dated April 2006 http: //www. dni. gov/press_releases/Declassified_NIE_Key_Judg ments. pdf 6. Report to the National Commission on Terrorist Attacks upon the United States: The FBI’s Counterterrorism Program since September 2001 (April 14, 2004) http: //www. fbi. gov/publications/commission/911 commissionrep. pdf 162

Daniel Seikaly – Trends and Developments from the Intelligence Community. 7. 2007 National Money Laundering Strategy (May 3, 2007) http: //www. treas. gov/press/releases/docs/nmls. pdf 8. New York City Police Department, Intelligence Division: Radicalization in the West: The Homegrown Threat (2007 Report). 9. National Drug Threat Assessment (2007), www. usdoj. gov/ndic/pubs 21/21137/index. htm 163

Daniel Seikaly – Trends and Developments from the Intelligence Community. Recently a number of financial institutions have created FIUs perhaps in response to their peers or what they perceive to be best practices. Most recently, in the case of the enforcement action against the Union Bank of California, the OCC made the emphatic point that FIUs must be effective in their monitoring and surveillance, especially with respect to SARs. For financial institutions wishing to create an FIU, care must be taken in how the FIU is structured (including the reporting lines and authority), how it is staffed, what technology and systems are used to assist the FIU and what role and relationships the FIU have in the context of the financial institutions AML/CT program. For more information on FIUs, see Financial Intelligence Units: An Overview. (International Monetary Fund and World Bank (2004) http: //www. imf. org/external/pubs/ft/FIU/fiu. pdf and Creating an FIU. See also http: //www. egmontgroup. org/info_paper_final_092003. pdf 164

10 Recommendations to AML/CT Professionals. 1. Know your examiner-in- charge 2. 3. 4. Know your examination team AML/CT professionals Know your examination team Proactively address examination comments, whether oral or in writing Accept that many AML/CT decisions are based upon facts and circumstances and allow for examiner judgment 5. 165

10 Recommendations to AML/CT Professionals. 6. Accept that enforcement actions do not necessary reflect bank regulatory agency policy 7. Accept that while the “Program” requirements have not changed, the expectations on what constitutes compliance has. 8. Accept that the AML Manual does not replace an examiner’s judgment or tailored determination 9. Independently review and upgrade “Program” requirements at least annually 10. Consult law enforcement and intelligence specialists regarding how to establish an effective FIU 166

Troutman Sanders LLP AML and Counter Terrorism Team Partners. Roscoe Howard roscoe. howard@troutmansanders. com Elliott Cohen elliot. cohen@troutmansanders. com Jake Lutz jacob. lutz@troutmansanders. com Nathan Muyskens nathan. muyskens@troutmansanders. com Mark Nagle mark. nagle@troutmansanders. com Stuart Pierson stuart. pierson@troutmansanders. com Thomas Powell thomas. powell@troutmansanders. com Daniel Seikaly daniel. seikaly@troutmansanders. com Jerome Walker jerome. walker@troutmansanders. com 167 202 -274 -2960 212 -704 -6245 804 -697 -1490 202 -274 -2900 202 -274 -2972 202 -274 -2897 404 -885 -3294 202 -274 -2895 212 -704 -6286