NEW YORK, Jan 30 (Reuters) - A new push by regulators and lawmakers to hold individuals, rather than just institutions, accountable for regulatory violations involving money laundering is spooking members of the U.S. financial industry, an executive of retail broker E*Trade Financial said on Thursday.
Speaking on a panel at an annual anti-money laundering conference, John Davidson, E*Trade’s global head of anti-money laundering, called a new bill in Congress, as well as vows by regulators to take more action against individuals, “a little scary.”
“This is part of an incredibly disturbing trend,” Davidson said, adding that sanctions against individuals responsible for a financial firm’s anti-money laundering controls could have consequences that turn out to be far more severe than the violations for which the individuals were penalized. He said a sanction against an anti-money laundering compliance officer was often a career-ending prospect.
His protest came as regulators appearing at the event - the Securities Industry and Financial Markets Association’s annual anti-money laundering conference - renewed vows to move away from forging settlement agreements with banks to focus more on people.
A top-level compliance employee at a major securities dealer echoed Davidson’s sentiment on the sidelines of the conference, saying that compliance officers at the largest Wall Street institutions were feeling especially nervous because the power structures in those institutions sometimes did not give compliance officers enough authority to act.
Regulators and lawmakers, however, say that holding individuals responsible is the key to stopping money laundering.
In October, U.S. Representative Maxine Waters, a Democrat of California, introduced a bill that she said would make ”it easier to go after unscrupulous bankers. When she introduced the bill, the “Holding Individuals Accountable and Deterring Money Laundering Act,” Waters said several big banks had been cited for violating anti-money laundering laws but no individuals faced any civil or criminal action.
New York state’s top financial regulator underlined the point at Thursday’s conference.
“When a corporation does something wrong, some person or persons must have done something wrong,” Benjamin Lawsky, New York’s financial services superintendent, said in a speech at the conference. “If we are resolving cases without individuals held accountable we’re not really deterring much.”
But bankers said that what individual accountability may deter is not so much lapses in monitoring for financial crimes but the motivation to choose a career in financial compliance. Several people who work in compliance for financial firms have told Reuters they are so worried about new individual accountability efforts they are considering getting out of the business.
At least one regulator at the conference expressed sympathy for that view.
“I know you won’t believe me when I say this, but my colleagues and I spend a lot of time arguing against individual liability” in some anti-money laundering cases, said Sarah Green, a senior enforcement director at the Financial Industry Regulatory Authority, Wall Street’s industry-funded watchdog.
Green said she sometimes urged investigators who prepared anti-money laundering cases that included individuals to focus solely on the firm instead, based on the facts and circumstances of each case.
Some cases simply weren’t severe enough to merit action against specific people, she said: “It has a lot of implications for careers.”