DOJ's New Strategy: More Criminal Charges

The Department of Justice is shifting its sights to a new offensive in combating money laundering: bringing criminal charges against banks and other financial institutions for weak compliance systems that fail to catch illicit money flows.

Even while the department's money-laundering unit is wrapping up a series of blockbuster cases involving sanctions-busting transactions routed through some of Europe's biggest banks, it has set its sights on the next front.

While the sanctions cases involving Iran and other countries have largely dealt with historical conduct, part of the shift is to pursue ongoing misconduct.

The focus on compliance systems has traditionally been left to financial firms' direct regulators, including the Office of the Comptroller of the Currency, whose punishments usually amount to a strong slap on the wrist.

The DOJ has brought a handful of its own such cases, including one against Wachovia in 2010 in which authorities said the bank failed to maintain effective anti-money laundering controls and did not stop more than $100 million of Colombian and Mexican drug traffickers' money from being laundered through accounts at the bank.

The DOJ unit is now interested in ramping up the number of criminal cases it brings under the Bank Secrecy Act, or BSA, a law that requires financial institutions and their employees to take steps to combat money laundering.

"I think you are going to see more complex BSA cases against banks, I think you are going to see enforcement across the broader spectrum of financial institutions," said Jennifer Shasky Calvery, who heads the Department of Justice's Asset Forfeiture and Money Laundering Section.

The cases come with potentially hefty punishments, with financial penalties equal to the illicit funds moved and prison sentences between five and ten years for individuals.

Also part of the appeal is that BSA cases, including compliance-related charges, can capture a range of financial institutions, from commercial banks and credit unions, to broker-dealers and insurers, to casinos and pawnbrokers.

In June, the Department of Justice charged check-cashing businesses in Brooklyn and Los Angeles with failing to file certain transaction reports and failing to have an effective anti-money laundering program. The businesses were being used to move more than $50 million in money, some of which was potentially linked to healthcare fraud, the government said.

Besides being one of the first such cases against a financial institution that isn't a bank, it was also the first to indict individuals - the owners of the businesses - with failing to have an effective anti-money laundering program.

It is unclear whether the effort will produce marquee cases or those targeted at smaller entities, and individual charges are unlikely at larger institutions since responsibilities are often shared by multiple employees and departments.

But at least one big upcoming case, against HSBC, is expected to be based in part on the bank's weak compliance systems.

The U.K.-based bank set aside $700 million last month for anticipated U.S. fines that are expected to come from a years-long probe by the Department of Justice and other authorities.

A U.S. Senate report in July highlighted the allegations, finding that HSBC had let clients shift potentially illicit funds from countries such as Mexico, Iran, the Cayman Islands, Saudi Arabia and Syria.

One of the largest casino companies, Las Vegas Sands, run by magnate Sheldon Adelson, is also under investigation by the Department of Justice for potential violations of anti-money laundering laws, according to a source familiar with the matter.

Banks have in the past generally tailored their anti-money laundering efforts to meet the requirements of banking regulators. With the DOJ's shift in focus, banks may need to ensure they are not liable to criminal charges of money laundering that the department would try to establish in any case it pursued.

"Any responsible financial institution is going to have to assess its anti-money laundering program and make sure that it has not just enough resources and personnel to satisfy regulators but also to ward off any criminal investigative activity," Peter Djinis, a former regulatory policy official with the U.S. Treasury Department's Financial Crimes Enforcement Network, also known as FinCEN.

Djinis, who is now in private practice in Florida, said he hopes the department's intensified interest doesn't cause friction with regulators.

Notably, New York state bank regulator Benjamin Lawsky earlier this month aggravated federal authorities by breaking from negotiations to bring his own sensational sanctions case against British bank Standard Chartered, extracting a large settlement in the process.

"What we don't want to do is have a bidding contest between the criminal prosecutorial powers of law enforcement and the oversight and supervisory powers of the regulators," Djinis said.


In 2010 the Department of Justice created within the asset forfeiture section a specialized unit, money laundering and bank integrity, which it staffed with about 14 prosecutors who focus exclusively on financial institution cases.

The unit, which is also handling the sanctions and stripping-related cases including the one against Standard Chartered, is focused on fortifying the U.S. financial system against money laundering and illicit finance, Shasky Calvery said.

"The way we do that is by aggressively enforcing the Bank Secrecy Act," she said.

The term "stripping" refers to the practice of banks removing or masking information regarding transactions.

Shasky Calvery is leaving the Justice Department next month to head FinCEN, the U.S. Department of the Treasury's anti-money laundering unit.

Her deputy, Jai Ramaswamy, will serve as acting chief of the unit and said he planned to keep it on the same track.

Part of the shift in focus appears to be a greater interest in cases which show ongoing illegal conduct rather than going after banks and institutions that broke the law in the past but have not continued to do so.

The headline-grabbing cases involving allegations that some of the world's largest banks concealed Iran-linked transactions are related to historical conduct. The Standard Chartered case, for example, deals primarily with conduct that occurred before 2008.

The newer focus cases in contrast involve some more recent activity. The check cashing case, for example, involved conduct that lasted through June 2011, prosecutors said.

Earlier this month the Department of Justice charged what it described as a multi-million dollar money laundering conspiracy to help move drug money in Texas, and said the conduct had occurred through 2011.

Such cases also represent something of shift to charging so-called professional money-launderers, as opposed to adding money-laundering charges to an underlying drug or corruption case.

Another priority of the unit is examining potential misconduct in new types of technology such as mobile payments, Shasky Calvery said.