Thursday, November 1, 2012


As time goes by, in our busy attempts to keep up with unfolding developments in the compliance world, we tend to forget compliance failures in the news. This is a mistake, for if we fail to remember the compliance mistakes made by failed banks, we tend to repeat them.

On that note, remember well the story of Wachovia Bank, where systemic compliance malpractice ended the bank's existence. Some of its mistakes should have been caught by the compliance staff, because the Bank of New York had  committed similar errors several years earlier, in its ghastly billion dollar money laundering scandal.

When the Bank of New York aggressively entered the Eastern European and Russian market, the business development staff they retained to develop that business were, understandably, multilingual, and originally from Eastern Europe. BNY should have known that, when you recruit staff from regions known for rampant corruption, you may get individuals who will engage in illicit activity in their duties at the bank. Where on earth were the Russian-speaking American or British bankers that they should have engaged ?

When Wachovia decided to expand into Latin America in a big way, it failed to adequately monitor, from the field. Mexican banks and casas de cambio, many of whom had been co-copted by criminal organisations. Wachovia should have known that the systemic corruption pervading all aspects of Mexican life made in-the-field AML/CFT monitoring, by American, and not Mexican, bankers mandatory. I met most of the senior Wachovia headquarters compliance supervisors, and I must report that I did not find one who was a native Spanish speaker, nor even one who spoke or read Spanish.

Additionally, though Wachovia recognised that there were legacy problems with high-value Latin American clients, they only hired a small number of internal auditors to review all the client information files for updating. At the rate they were proceeding, it would have taken several years to get to all the customer files. That is compliance malpractice, in my humble opinion.

Remember this-

(1) If your bank enters a new market, learn everything you can about the financial environment, transparency and corruption levels, and risk factors, and adjust your compliance programme accordingly.

(2) Do NOT use foreign nationals in positions where it would be easy for them to assist criminal elements in committing financial crime through your bank.  They are acceptable in minor roles, but please do not place them in senior positions; engage Western bankers with language skills.

(3) Do not let your accounts representatives trump compliance in new and emerging markets, as these staff members may very well have been influenced or bribed, or extorted or blackmailed into assisting money launderers, or terrorist financiers.

RIP Wachovia; I wonder where its senior compliance officers are working now ?


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