Where is the Line Compliance Officers Must Not Cross?

August 20, 2014 at 8:32 am Leave a comment

Monday, New York State’s Department of Financial Services (DFS) announced that it was banning Price-Waterhouse-Cooper from providing financial consulting services to financial institutions for two years and imposing a $25 million fine.  The settlement resulted from charges that PWC helped a Japanese bank evade BSA and OFAC requirements to facilitate wire transfers through American branches to sanctioned countries.

In zeroing in not only on illegal bank activity but the consultants who provide them legal advice, DFS’s actions may amount to a watershed moment in bank regulation that impacts compliance officers not only at the biggest banks but the smallest credit unions.  If you think I’m exaggerating, you’re wrong.  Here’s why.

The documents released by the DFS on Monday included an amendment made to a report tracking the bank’s wire transfer activities.  The PWC consultant correctly highlighted the transaction in a report to the bank.  But the bank successfully pressured PWC to remove the offending finding since it directly contradicted what the bank was telling the DFS.  Now, don’t get me wrong.  This is a particularly egregious example and the DFS was right to take the action it did, but the kind of pressures placed on the consultant are the type that are placed on lawyers and compliance officers every day.  We live in a world of regulations and every time a regulation in interpreted in a given way, it could restrict the actions a credit union can take.  Not every one of these decisions should be fodder for increased regulatory scrutiny.

At its core, the responsibility of the person who handles compliance at your credit union is to lay out a plan for translating regulations and laws into an operational framework.  By definition, this means that banks and credit unions are confronted with legal barriers between what they want to do and what the law says they should do.

I think it is perfectly legitimate for boards and CEOs to weigh legal and compliance advice and decide that the cost of compliance outweighs its benefits.  What isn’t legitimate is for any organization to create an environment where people are rewarded not for providing the best legal advice they can, but for providing the legal advice that the boss most wants to hear.  Ultimately, the line that shouldn’t be crossed is almost never going to be as clear as the case highlighted by DFS this week. 

What we need is a robust discussion about creating a codified set of ethical rules that apply to compliance officers,  What we also need is to clarify the distinction between the responsibilities of compliance officers and attorneys.  Regulators like to think that regulations are so clear cut that any institution that doesn’t interpret them the way regulators intended is clearly violating the law.  But I would hate to see regulators scrutinize legal memoranda in which retained and in-house counsels creatively analyze defensible interpretations of regulations for evidence that institutions chose not to adhere to the “correct” answer. 



Entry filed under: Compliance, Regulatory. Tags: , , .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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