AML Program Update -
It Could Be Worse …

As we contemplate the application of the US Patriot Act to advisory and brokerage activities, we should recognize this act is not just applicable to our industry. To evidence this, note the August 6, 2007, announcement from the Financial Crimes Enforcement Network ("FinCEN") and the related civil money penalty against American Express Bank International and American Express Travel Related Services Company.

In this ruling, FinCEN noted that American Express Bank International's anti-money laundering program was deficient in three of the four core elements. Namely, the Bank failed to implement adequate internal controls, failed to conduct adequate independent testing, and failed to designate compliance personnel to ensure compliance with the Bank Secrecy Act (as it pertained to American Express Bank International's high-risk customer base, product lines, and international jurisdiction of operations).

As a result, American Express Bank International conducted business without adequate systems and controls reasonably designed to manage the risk of money laundering. This included the potential for Black Market Peso Exchange transactions that could be used by Colombian drug cartels to launder the proceeds of narcotics sales.

Additionally, a review by FinCEN revealed over 1,000 failures to file timely, accurate and complete suspicious activity reports involving over $500 million in suspicious transactions by American Express Travel Related Services Company between May 7, 2006 and May 7, 2007. Within the filings made there were purportedly over 2,000 errors, including errors where sections of the form requiring data were left blank, incorrectly completed, or referred to in another section of the form that lacked the referenced information.

Because of the seriousness of the violations, FinCEN determined that an appropriate penalty in the matter was $25 million, $10 million of which will be satisfied by a single payment and the balance shall be deemed as satisfied by a portion of the $55 million forfeiture of client assets to FinCEN.