AML COMPLIANCE OFFICER LIABILITY, PERCEPTIONS, AND BEST PRACTICES

Compliance officers increasingly risk of being held personally liable if they fail to carry out their responsibility of ensuring their firms comply with the law.

The focus of modern investigations often includes in-house compliance and general counsel and how these professionals have failed to prevent civil and criminal violations. As a result, such professionals must make sure they have explored their insurance options and document in a detailed manner all they have done to keep their firms in compliance with the appropriate laws and rules.

In a poll survey - Cost of Compliance - by Thomson Reuters results showed of nearly 600 compliance professionals, 59 percent of respondents (53 percent in 2014) said they expect the personal liability of compliance officers to increase in 2015, with 15 percent expecting a significant increase.

Their concerns are unsurprising, given the recent enforcement actions that have held compliance professionals, or general counsel or CEOs personally liable, or have cited their misbehavior or conscious disregard for the truth, leading to their forced or voluntary resignations.

The cases

A two-count indictment unsealed Thursday in federal court in Brooklyn, NY, charged William Quigley, the former CCO of a registered broker-dealer in Woodbury, NY, with wire fraud and money laundering.

Defendant Wired More Than $500,000 of Investor Funds to Co-Conspirators in the Philippines

A two-count indictment was unsealed this morning in federal court in Brooklyn, New York, charging William Michael Quigley, the former Chief Compliance Officer of a registered broker-dealer in Woodbury, New York, with conspiracy to commit wire fraud and money laundering conspiracy in connection with a fraudulent investment scheme. Quigley will be arraigned later today before Magistrate Judge Arlene R. Lindsay at the United States Courthouse in Central Islip, New York.

The charges were announced by Kelly T. Currie, Acting United States Attorney for the Eastern District of New York, and Diego Rodriguez, Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office (FBI).

Quigley and his co-conspirators allegedly engaged in a coordinated and sophisticated scheme built on lies and deceit to defraud overseas investors. Rather than use his training and expertise to protect these investors who were told that their money would be invested in well-known U.S. companies and funds, Quigley helped his co-conspirators steal the funds by transferring them to the Philippines and using them for his personal use, stated Acting United States Attorney Currie. We are committed to holding accountable those who abuse their positions of trust to deceive the investing public. Mr. Currie thanked the Securities and Exchange Commission for its significant cooperation and assistance in the investigation.

Operating under false pretenses, Quigley and his co-conspirators assumed the role of registered brokers who were working in close coordination with regulatory authorities here in the United States. In doing so, they allegedly carried out a scheme to siphon funds from victim investors overseas – a scheme that fueled their own greedy desires. Today indictment is a step forward in restoring the public’s trust and a reminder that this type of dishonorable behavior will not go unpunished, stated FBI Assistant Director-in-Charge Rodriguez.

As alleged in the indictment, the defendant Quigley, together with his co-conspirators, represented to overseas investors that they were brokers at firms registered with the National Association of Securities Dealers (NASD) or the Financial Institution Regulatory Authority Inc. (FINRA) and that they would invest the investors’ money in companies and investment funds such as Dell, Berkshire Hathaway, and BlackRock. In reality, Quigley and his co-conspirators were not registered brokers and did not invest the funds as promised. Instead, Quigley personally opened several bank accounts in New York to receive the investors’ funds, and he and his co-conspirators transferred more than $500,000 of the $800,000 investor funds from these accounts to accounts in the Philippines. Quigley immediately withdrew more than $42,000 in cash for his personal use and made dozens of trips to different banks in an effort to conceal his cash withdrawals.

The charges in the indictment are merely allegations, and the defendant is presumed innocent unless and until proven guilty. If convicted, Quigley faces a maximum sentence of 20 years of imprisonment.

The charges were brought in connection with the President’s Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory, and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state, and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions, and other organizations. Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants. For more information on the task force, please visit www.StopFraud.gov.

The government case is being prosecuted by the Office’s Business and Securities Fraud Section. Assistant United States Attorney Christopher Ott is in charge of the prosecution.

The Defendant:

WILLIAM MICHAEL QUIGLEY

Age: 47

Seaford, New York

E.D.N.Y. Docket No. 15 CR 258

The SEC also brought administrative charges against Quigley, alleging that he violated and aided and abetted violations of the anti-fraud provisions of the federal securities laws.

The Justice Department indictment alleges that Quigley and co-conspirators told overseas investors their money would be invested in blue-chip companies and funds and that he and others associated with his firm, Trident Partners Ltd., were registered with the Financial Institution Regulatory Authority (FINRA), both lies.

Last Tuesday, the Financial Crimes Enforcement Network (FinCEN) fined a money transfer business and its owner for processing millions of dollars in wire transfers to Yemen without performing any due diligence on the transactions.

King Mail & Wireless Inc. and Ali Al Duais, who was the firm’s owner and designated compliance officer, were charged under the Bank Secrecy Act, admitting to willful and repeated violations of the law and agreeing to pay a fine of $12,000.

FinCEN barred Al Duais permanently from serving as an employee, officer, director, or agent of any financial institution located or conducting business in the United States. In its final order, FinCEN said King Mail had no written anti-money laundering program.

In the last year or so, compliance officers at firms as diverse as Swinton Insurance, Bank Luemi, Bank of Tokyo-Mitsubishi, Brown Brothers Harriman, Deutsche Bank, MoneyGram International, Private Capital Management Inc., and BlackRock were fined, had to resign or were banned from the profession, like Al Duais.

A regulator's comments

Andrew Ceresney, SEC Director of Enforcement, outlined the circumstances under in which the SEC will seek sanctions against compliance personnel in a speech to compliance professionals last year. 

The SEC, he said, had brought 10 actions to date as part of the Compliance Program Initiative, including charges against compliance personnel when they were clearly responsible for the failure to adopt or implement adequate compliance programs. He emphasized that the SEC will take action against compliance officers if:

• They actively participated in misconduct;
  
  
They helped mislead regulators; or

• They have clear responsibility to implement compliance programs or policies and wholly failed to carry out that responsibility.

Ceresney touched on the point in May when in a speech to lawyers he asked rhetorically, "Why the recent increase in litigation? This may reflect an increased focus on individual liability, aggressive enforcement of the securities laws, and the significant sanctions that the Commission has been seeking. Whatever the reason, the increase is noticeable.