First-Ever Case Against Chief Compliance Officer For Failure To Implement Anti-Money Laundering Program at MoneyGram

moneygramA Chief Compliance Officer (CCO) ensures that the Board of Directors, management and employees comply with the rules and regulations of regulatory agencies and the company’s own policies and procedures. What happens, then, when the CCO is personally accused of wrongdoing?

The Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) recently sued MoneyGram International Inc.’s former CCO, Thomas Haider. FinCEN accuses Mr. Haider of having a direct role in MoneyGram’s failure to file required suspicious activity reports (SARs) and failure to implement an adequate Anti-Money Laundering (AML) system. MoneyGram entered into a 2012 deferred prosecution agreement over this conduct.

In this civil case against Mr. Haider, FinCEn seeks to collect a $1 million civil monetary penalty and to enjoin Haider from having a hand in running any financial institution within the United States for several years to “prevent future harm to the public.” It appears to be the first-ever case against a CCO for this kind of conduct.

How Does MoneyGram Work?

MoneyGram is in the business of wire transfers. MoneyGram customers enter a MoneyGram outlet – typically an independently-owned business like a grocery or convenience store that subscribes to MoneyGram’s services – and fill out a form. On the form, they indicate the amount of money they would like to transfer, the recipient, and location at which the recipient will receive the transfer.

MoneyGram charges a fee for every transaction. As a result, the complaint alleges, MoneyGram maximizes its profits by increasing the number of daily transactions. As a result, the complaint states, MoneyGram and its employees have a strong incentive to increase the number of its operational outlets and transactions and hold an equally strong disincentive against firing crooked agents and closing problematic outlets.

Early MoneyGram Litigation and Settlements

MoneyGram has faced government investigation over the failure to enforce appropriate AML protections.

In 2009, the Federal Trade Commission (FTC) threatened litigation against MoneyGram for its alleged facilitation of wire fraud schemes. In response, MoneyGram settled with the FTC and agreed to pay the FTC an $18 million penalty.

In 2012, MG entered a deferred prosecution agreement with the U.S. Attorney’s office. In its 2012 agreement, MoneyGram forfeited $100 million and admitted that it had willfully failed to maintain an effective AML program.

MoneyGram’s Compliance Department and Mr. Haider’s Alleged Failures

The Bank Secrecy Act requires that an organization like MoneyGram file a SAR when it identifies an entity making a transaction for more than $2,000 and knows, suspects, or has reason to suspect that that entity is transferring money for a criminal purpose. FinCEN provides guidance about SARs as well.

The Act also requires a company to put into place adequate AML policies and procedures for enforcing those policies.

MoneyGram’s compliance officer was responsible for creating policies that ensured that MoneyGram filed all its SARs accurately and timely.

FinCEN’s complaint blames Mr. Haider directly for his department’s shortcomings. It alleges that there were particular instances where Mr. Haider himself received reports of suspicious behavior in MoneyGram outlets in New York, but failed to include that information in any SARs.

In addition, the complaint accuses Mr. Haider of being responsible for a litany of other failures. The complaint states that Mr. Haider’s department:

  • created no discipline policy for agents and outlets that Haider personally knew were involved in money laundering;
  • failed to terminate agents and outlets known to be at high risk for money laundering;
  • failed to ensure that robust and independent audits were carried out at MoneyGram’s various outlets and on all its agents; and
  • skipped diligence procedures and investigations of prospective outlets that had been cut off by other money transmission companies on suspicion of fraud.

If true, these allegations could constitute a violation of the Bank Secrecy Act’s requirement that a financial organization like MoneyGram institute and maintain AML procedures.

What Does FinCEN Want?

FinCEN assessed Mr. Haider for a 190-day period from late 2007 to early 2008. FinCEN concluded that, during that period, Mr. Haider played a direct role in the failure to institute and maintain adequate AML systems. For his failures, FinCEN reasoned, Mr. Haider should be held personally liable.

It could have been worse, I suppose. The applicable penalties for AML failures like the ones at issue amount to $25,000 per day for every day the CCO’s organization remains unprotected. FinCEN has accused Mr. Haider of being responsible for presiding over MoneyGram’s compliance department for 190 willfully unprotected days, which would bring his penalties to the tidy sum of $4.75 million.

FinCEN assessed his penalty at $1 million.

Another Risk for CCOs

There’s no question that being a CCO of a major corporation is a stressful job. Being CCO of a financial services company or bank is even more stressful, given the high-stakes world of SARs and other regulatory limitations and requirements. Large financial institutions employ entire departments of people to help with AML requirements.

Mr. Haider’s case is interesting in part because of its rarity – the government seldom (if ever) pursues individuals for claims like these. Plus, it showcases just how risky the CCO job can be. Several in the compliance industry have expressed concern about the government’s actions here, suggesting that Mr. Haider may have been the fall guy for more profit-driven business executives within the company.

MoneyGram, of course, has distanced itself from Mr. Haider, stating

Tom Haider has not been an employee of MoneyGram since May 2008. Since that time, MoneyGram’s management, organizational structure and programs have changed significantly. It is MoneyGram’s policy not to comment on ongoing litigation.

I would suspect that MoneyGram does not want this case to proceed into discovery. That is where Mr. Haider’s defense team will explore which executives at MoneyGram knew about any potential problems with compliance. That may not be a comfortable process for former (or current) management.

Based on the docket, it looks like Mr. Haider is prepared to fight. Given that this is only a civil case, the government does not have its usual hammer of jail time to deters Mr. Haider from challenging its allegations.

In a brief supporting a motion to transfer the case to the District of Minnesota (where Mr. Haider worked and where MoneyGram was headquartered at the relevant time) and out of the Sovereign Southern District of New York, Mr. Haider’s counsel previews a possible defense:

As will become clear as this litigation progresses, a central issue facing MoneyGram at the time was data aggregation. Part of MoneyGram’s AML program focused on the ability to analyze millions of transactions to identify patterns that would give rise to filing a SAR. Customers have the ability to walk into a MoneyGram outlet throughout the country and direct the transmission of funds to another individual or entity either inside the United States or outside the country. MoneyGram does not obtain the same customer information as a typical bank, broker, or mutual fund (e.g., no account opening information). Contrary to the allegations in the Complaint, matching fraudulent transactions with agents was not a facile process.

I hope Mr. Haider will fight the good fight here, and I’ll be keeping an eye on the docket to see how the case develops.

This entry was posted in civil case, Compliance, Money Laundering and tagged , . Bookmark the permalink.

5 Responses to First-Ever Case Against Chief Compliance Officer For Failure To Implement Anti-Money Laundering Program at MoneyGram

  1. Pingback: Top 10 Posts in 2015 (and My Other Favorites) | Grand Jury Target

  2. Dan says:

    Any updates?

    • Sara Kropf says:

      Hi Dan. Yes, Mr. Haider filed a counterclaim in February against the Treasury Department. The parties are in discovery right now, so this looks to be a long battle. I plan on writing a longer update in January.

  3. Pingback: The Five Most-Read Posts of 2016 (and My Five Favorite Posts This Year) | Grand Jury Target

  4. Pingback: Where Are They Now? The First-Ever Case Against a Compliance Officer over Failure to Implement Anti-Money Laundering Program | Grand Jury Target

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s