Thank you for that kind introduction, Rob. It’s a pleasure for me to be here today. I want to thank the American Bankers’ Association and the American Bar Association for this opportunity to speak with you.
Over the last quarter century, asset forfeiture and money laundering prosecutions have become integral to our country’s law enforcement strategy. Whether it takes the form of drug trafficking, fraud, or corruption, crime is – very bluntly – a business. And like any business, it requires capital. When we forfeit the proceeds of crime and vigorously prosecute violations of our money laundering laws, we take the profit out of crime and deny criminal organizations the resources they need to survive.
But because crime is a business – and because criminals must constantly hide, move, and access their money – they will always look for, and seek to exploit, vulnerabilities in our financial system or weaknesses in a bank’s compliance structure. Thankfully, most bankers are committed to keeping dirty money out of their institutions. They know it is bad for business; bad for their reputations; and bad for the integrity of our banking system. Frankly, they know it is just plain wrong. That commitment to protecting our banks is the very reason that so many of you are gathered here for this important conference and I applaud you. Yet, this view is not shared by all. Indeed, the Justice Department has recently prosecuted several cases where compliance was simply ignored and short-term profits were put ahead of doing what was right.
We have learned much from these prosecutions. When compliance officers don’t do their jobs effectively, our first line of defense is breached. When financial institutions are ambivalent about fostering a culture of compliance – or when they fail to devote the necessary resources to their Bank Secrecy Act and anti-money laundering programs – criminals are able to inject dirty money into our banks and, worse, use that money to advance their illegal activity.
For these reasons, all of you play a critical role in our efforts. Money laundering schemes succeed, and criminal enterprises thrive, only when law enforcement is not in a position to detect the dirty money moving surreptitiously through our banks. But you can be our eyes and ears.
Today, I would like to speak with you about how the Justice Department is aggressively deploying its resources to prosecute those who threaten the integrity of our financial system. And, I want to describe how you can be our partner in that fight.
Reinvigorated Criminal Enforcement
Ten years ago, there were no criminal enforcement actions, or even serious regulatory penalties, for the failure of banks to file Suspicious Activity Reports or comply with the Bank Secrecy Act. Indeed, the first civil penalty against a bank for failing to file SARs was imposed only in September of 2002.
Happily, things have changed. Since that first civil penalty in 2002, the Justice Department has undertaken a series of investigations of financial institutions, resulting either in the criminal conviction or deferred prosecution of at least 15 different banks – among them Lloyds, Credit Suisse, Wachovia, and Barclays. Moreover, in the last three years alone, our prosecutions of banks have resulted in forfeitures of nearly $1.5 billion dollars.
In bringing these enforcement actions, we have not just focused on large banks. Indeed, the banks have run the full gamut – from Pamrapo Savings Bank, a small community bank in New Jersey that pleaded guilty earlier this year to conspiring to violate the Bank Secrecy Act, to banking giant Wachovia, which admitted in March in a deferred prosecution agreement to failing to establish an anti-money laundering program.
In both of these cases – to put it very plainly – the institutions abdicated their roles as responsible gatekeepers to the American banking system. Pamrapo, for example, admitted to failing to file CTRs and SARs related to approximately $35 million in illegal and suspicious transactions, including more than $5 million in structured currency transactions. Wachovia admitted to allowing at least $110 million of drug proceeds to flow unimpeded through its accounts. As seen in just these two cases, the amount of dirty money that can move through a single bank can be staggering.
It is not surprising, then, that the use by criminals of our banking system to launder money poses a significant criminal threat. All you have to do is look at the cartel-driven bloodshed in Mexico, the damage that organized crime syndicates can inflict on our communities, and the millions of dollars that Americans lose each year to fraud, to see why the Justice Department is so committed to prosecuting and punishing money launderers.
Money laundering, moreover, is not the only concern we as law enforcement have when we talk about protecting the integrity of our banks. Indeed, we have been equally vigilant about going after those banks that have, for their own profit, purposefully violated U.S. sanctions against certain countries – sanctions that are meant not only to protect our banks, but also to affirmatively block specific countries from using our financial institutions. Last year, for example, Credit Suisse admitted to systematically evading – over the course of a decade – U.S. sanctions against Iran, Sudan, Burma, Libya, and Cuba. Credit Suisse set up a system – some might even call it a business plan – to deceive the United States by disguising its U.S. dollar clearing on behalf of countries that the United States had banned from our financial system. The bank’s actions ranged from stripping out the word “Iran” from payment messages, to substituting code words for Iranian customer names, to hand-checking payment messages from Iran to ensure that they had been formatted to avoid U.S. sanctions filters. Credit Suisse even advised and trained the sanctioned entities on how to avoid automated filters at U.S. banks. In essence, evading our banking regulations was a service offered by Credit Suisse to sanctioned countries. As a result, Credit Suisse illegally moved hundreds of millions of dollars through the American financial system. As part of a deferred prosecution agreement with the Justice Department relating to this conduct, Credit Suisse forfeited $536 million dollars to the government.
In each of the cases I just described, the bank’s compliance processes fell far short. Now, I am very aware that at many banks, Bank Secrecy Act and anti-money laundering responsibilities are considered a cost-center. Setting up an effective compliance program to detect and report suspicious activity means accruing significant expenses for technology, personnel, and training – all without the promise of any short-term profits. But if there is one message I want to leave you with today, it is that financial institutions simply cannot cut corners on compliance: having a compliance program that works is worth it. Indeed, as our recent prosecutions show, failing to adopt and maintain a real compliance structure will have serious consequences. Frankly, not having a robust compliance program makes absolutely no business sense.
Our New Initiatives
Now, more than ever, the American public wants, and deserves, trust and transparency from the financial industry. The public wants to see profits, of course, but not at the expense of the security of our banks. To that end, I want to talk with you today about two new initiatives that I believe will significantly enhance the Justice Department’s enforcement efforts. Two initiatives that I am proud of.
First is the creation of the Money Laundering and Bank Integrity Unit within the Criminal Division’s Asset Forfeiture and Money Laundering Section. The creation of this Unit is a testament to, and builds upon, our recent enforcement successes. The new Unit will be devoted to investigating complex, national and international criminal cases, and will focus on three specific types of violators: first, financial institutions, including their officers, managers, and employees, when their actions violate the law; second, professional money launderers who sell their services to criminal organizations; and third, those engaged in using the latest and most sophisticated money laundering techniques, such as virtual currency and mobile payment systems. By standing up this new Unit, we are committing significant resources, and expertise, to prosecuting those who funnel crime proceeds through our banks. Moreover, we are seeking to staff the Unit with sophisticated, talented and aggressive lawyers – prosecutors and lawyers from the banking industry – those who know the complicated mechanisms by which money moves through the global financial system, and those who understand how organized criminal networks work.
Our second new initiative is the Kleptocracy Asset Recovery Initiative, which will target and recover the proceeds of foreign official corruption that have been laundered into or through the United States. In November of last year, at the Global Forum on Fighting Corruption and Safeguarding Integrity, in Qatar, Attorney General Holder pledged to redouble the U.S. commitment to recovering foreign corruption proceeds. This Initiative represents a concrete step toward fulfilling that commitment. The Kleptocracy Initiative will involve three key sections in the Criminal Division: the Asset Forfeiture and Money Laundering Section, which will lead it, and the Office of International Affairs and the Fraud Section, which will provide critical support. Once fully implemented, this Initiative will allow the Department to recover assets on behalf of countries victimized by high-level corruption, building on the Justice Department’s already robust enforcement of the Foreign Corrupt Practices Act. Through the Kleptocracy Initiative, the Department will ensure that corrupt leaders cannot seek safe haven in the United States for their stolen wealth. And, if we uncover such wealth, the Justice Department will forfeit and return this stolen money to its rightful owners – the people and governments from whom it was taken.
Enhanced Enforcement Against Individuals
In addition to these new initiatives, and in conjunction with our already vigorous enforcement efforts against financial institutions themselves, individual wrongdoers must be prosecuted and sent to jail when they play a role in the illegal conduct of the banks for which they work. Naturally, no company can act criminally without some action by individuals. And we are acutely aware that we cannot allow companies to be seen as “taking the fall” for executives who may have violated the law. Yet, we are also cognizant of the challenges in proving the criminal liability of any single person where the real problem in a particular financial institution may be a systemic failure to build a true compliance program. It is not surprising, then, that the decision whether to prosecute an individual, an entity, or both, is one we have to make very carefully.
As our recent record shows, we are not reluctant to bring criminal charges against executives when they put at risk the stability of their financial institutions. This past June, for example, the Justice Department obtained an indictment against Lee Bentley Farkas, the former chairman of Taylor, Bean & Whitaker Mortgage Corporation. TBW, as it is called, was once one of the largest private mortgage companies in the United States. Mr. Farkas was charged with perpetrating a massive fraud scheme that resulted in losses exceeding $1.9 billion and that contributed to the failure not just of TBW, but also of Colonial Bank, one of the 50 largest banks in the United States before its collapse in 2009.
Similarly, this past July, in a prosecution brought by the U.S. Attorney’s Office in Atlanta, two vice presidents of Integrity Bank, a $1 billion financial institution, pleaded guilty to various crimes. The bank’s former vice president in charge of risk management, Joseph Foster, pleaded guilty to insider trading of Integrity stock. He admitted to knowing that the bank faced a growing risk that a debtor would default on $80 million in outstanding loans, and sold his stock anyway. In the same case, Integrity’s former executive vice president in charge of lending, Douglas Ballard, admitted to conspiring with a major bank customer to provide bogus loans in exchange for cash bribes.
The Integrity and Colonial Bank investigations are just a couple of examples of the Department’s commitment to prosecuting individuals who cheat, deceive, and defraud. Although not every investigation of a financial institution will result in the indictment of individual executives, we will not let individuals escape from punishment when they intentionally violate the laws that are meant to protect our financial system.
The Benefits of Cooperation
Before I end, let me discuss with you one additional, and important, issue: the critical decision that all of you face about how and whether to cooperate with the government when the institutions for which you work are faced with evidence of illegal conduct.
I have said many times before, and I say to you again now, we want companies that uncover illegal conduct to come forward voluntarily. Put very simply, if you come forward and fully cooperate with our investigation, you will receive meaningful credit. “Meaningful credit” does not mean a free pass for doing the right thing. But, self-reporting and cooperation do carry significant incentives. Indeed, many options are available to the Justice Department short of prosecution when a banking entity has been truly cooperative: no charges may be brought at all, or we may agree to a deferred prosecution agreement or non-prosecution agreement, sentencing credit, or a below-Guidelines fine. Ultimately, every case requires an assessment of the particular facts, as well as the severity and pervasiveness of the conduct and the quality of the bank’s compliance program. But, in every case of self-disclosure, full cooperation, and remediation, the Department is committed to giving credit where it’s deserved.
The recent resolution of the Barclays Bank matter is a concrete example of what I mean by “meaningful credit.” In May 2006, Barclays voluntarily disclosed to the Office of Foreign Assets Control four transactions that violated U.S. sanctions. At that time, Barclays commenced a limited internal investigation into the operation and limitations of its automated filtering system and, in November 2006, the bank exited all relevant relationships with banks subject to U.S. economic sanctions, banks headquartered in sanctioned countries, and the subsidiaries of such banks. In 2007, after being contacted by federal and state prosecutors, Barclays agreed to cooperate fully and broadened its review to include a comprehensive internal investigation covering the preceding seven years.
Barclays promptly shared the results of its internal investigation with the Department and the Manhattan District Attorney’s Office, as well as with OFAC, and Barclays’ U.S. banking regulators – the Federal Reserve and the New York State Banking Department. And, most important, from the beginning of the investigation, Barclays took full responsibility for its conduct. The case was resolved through a deferred prosecution agreement with a term of two years, a forfeiture of $298 million, and compliance by the bank for a period of two years overseen by the Justice Department, OFAC, and the Federal Reserve in coordination with the UK’s Financial Services Authority.
As seen by our prosecution of Barclays, real cooperation has real benefits. At the same time, cooperation didn’t result in amnesty, nor should it have. Indeed, while a deferred prosecution is a second chance of sorts for an institution, any bank that is subject to deferred prosecution must understand that it must live up to the terms of its agreement. If a bank subject to a DPA fails to implement a state-of the-art compliance program, does not live up to its promise of full cooperation, or commits any other crime during the term of the agreement, it will be prosecuted for all of its conduct.
The Department of Justice is committed to punishing and deterring illegal conduct in our financial system. But the Department cannot – and does not – do this work alone. Indeed, nowhere is cooperation among our public and private sector partners more vital than in fighting the increasingly interconnected groups that traffic in drugs, run organized crime syndicates, and commit fraud – and then try to use our banks to hide and move their crime proceeds. Of course, nothing we do will make us invulnerable, but we can become less vulnerable if we work together.
I want to thank you for all the work you do. You are the gatekeepers of our financial system, and you have a daunting task. But the challenges you face cannot be an excuse. You must institute robust anti-money laundering and compliance programs in order to prevent dirty money from entering our banking system. And, if you uncover evidence of illegal conduct in your institutions, we need you to come forward.
The Justice Department continues to work hard to zero in on the profits of crime, and the new Bank Integrity Unit and Kleptocracy Initiative I’ve described today are significant additional steps in that direction. We hope, and expect, that you will do your best to partner with us on this essential mission.
Thank you so much for having me here today.