Yesterday, I was catching up on the NAFCU Compliance Blog and I caught this gem: ING is going to pay the U.S. Treasury Department $619 million in settlement of alleged OFAC violations. While FinCEN says OFAC is not truly part of BSA, it’s hard to argue how financial institutions must deal with OFAC in much the same way as they deal with the PATRIOT Act and SAR and CTR requirements. Up until now, the largest BSA settlement that I knew of was Wachovia’s $110 million settlement with FinCEN.
When I teach BSA, I often describe the penalties associated with BSA – how they are cumulative and also increase every day for continuing non-compliance. This rapidly creates a crime with jail time far greater than that for murder. Thus, the entity accusing the financial institution of the particular violation, be it FinCEN, The Department of Justice or the U.S. Treasury Department, can simply ask the question: “Who wants to go to jail?” Naturally, no one wants this so the financial institutions, typically large banks, negotiate an agreement which results in the admission of no wrong-doing and the payment of a very large fine. Thus, no one goes to jail.
You can read the U.S. Treasury Department’s announcement and decide for yourself whether the allegations were worth a $619 million settlement. That’s really not my point. The intimidation methodology that the government has in place whereby it extracts large fines from financial institutions is unlikely to change.
The question, dear reader, is what would happen to a credit union in this context? Well we know what happened to Suffolk Federal Credit Union, and there have been others as well. I’m only aware of one credit union that actually had to pay a fine. The rest of them had to make painful and expensive changes but faced nothing like what ING or Wachovia had to deal with. Why is that? Money, of course. Most credit unions would vanish if they had to pay a million dollar fine. Credit unions have no access to capital from secondary markets. The members’ money is all they have. So if the government fines the credit union, it is simply punishing the members. Whether that means anything or not is a separate question, but if you want to be cynical, there’s simply not enough money there to punish without destroying. If the government destroys the credit union, no one wins and the government gets scrutiny as well.
We can debate the whole government conscripting financial institutions to do its financial monitoring work and then the harsh punishments given when these unwilling soldiers fail, but there is no point. There is zero desire in Washington for this modus operandi to change. Thus, the only thing that can be done is to comply with BSA, comply with the PATRIOT Act and comply with OFAC. I joke that compliance officers are special because they are the first people to go to jail. Actually it’s no joke at all. This stuff is serious as a heart attack and needs to be the number one compliance priority for credit unions. In comparison, while Reg Z may be harder and more burdensome, no one has ever gone to jail for a Truth-in-Lending violation.