Why it matters

A federal court judge in Minnesota has rejected the motion of a former chief compliance officer to dismiss the U.S. government's claim that he is liable under the federal Bank Secrecy Act for his employer's failure to comply with applicable BSA requirements. The case arises out of one of the longest-running enforcement sagas in the money services business industry but has implications for AML compliance officers of any entity subject to the AML compliance and recordkeeping and reporting requirements of the BSA. Those implications include not only exposure to substantial civil money penalties for the compliance shortcomings of their employers but also a potential permanent ban on working as AML compliance professionals in any entity subject to the BSA. The ruling was made in a complaint filed in December 2014 by the U.S. Department of Justice on behalf of the U.S. Department of the Treasury (DOT) to enforce a $1 million civil money penalty assessed by FinCEN against Thomas Haider, the chief compliance officer (CCO) for MoneyGram International from 2003 to 2008, for failure to ensure the company implemented and maintained an effective AML program and complied with Suspicious Activity Report (SAR) filing obligations. The complaint also requested an order prohibiting Haider from working—either directly or indirectly—for any financial institution.

The court disagreed with Haider's argument that federal law does not permit the imposition of a penalty for an AML program failure against an individual, ruling instead that "the plain language of the statute provides that a civil penalty may be imposed on corporate officers and employees like Haider." The court also rejected or declined to consider at this time several other arguments made by the defendant, including one related to FinCEN's alleged improper use of grand jury materials and one asserting a violation of his right to due process.

Detailed discussion

One of the longest-running enforcement sagas involving a money services business took another turn early in the new year when a federal judge refused to grant a former MoneyGram chief compliance officer's motion to dismiss a lawsuit filed by the U.S. Department of Justice on behalf of the U.S. Department of the Treasury. The lawsuit sought to enforce the $1 million civil money penalty assessed by the Treasury Department's Financial Crimes Enforcement Network (FinCEN) against Thomas Haider, the CCO of MoneyGram International from 2003 until 2008.

The FinCEN assessment was only the latest (but possibly last) federal action arising out of a Federal Trade Commission investigation that began almost a decade ago into allegedly unfair and deceptive practices of MoneyGram International and fraudulent telemarketing practices in violation of the Telemarketing Sales Rule. In 2009 the company entered into an agreement with the FTC to settle those charges and paid the agency $18 million to provide redress to injured consumers.

A federal criminal investigation followed, and in 2012 the company entered into a deferred prosecution agreement with the Department of Justice, in which the company admitted that it violated the Bank Secrecy Act (BSA) by willfully failing to implement an effective anti-money laundering (AML) program, including among other things appropriate agent due diligence and agent monitoring. MoneyGram agreed to forfeit $100 million, undertake a massive effort to revamp its compliance activities and retain an independent compliance monitor approved by the government.

The December 2014 FinCEN order assessed a $1 million civil monetary penalty against Haider and noted that as the chief compliance officer of MoneyGram from 2003 until 2008 he was responsible for BSA compliance, ensuring that the company implemented maintaining an effective AML program and timely filing SARs with FinCEN. Failures with respect to all of these items were factors cited as contributing to the company's deferred prosecution agreement.

Typically, FinCEN assessments are imposed via consent agreements with the target. However, this did not happen in the Haider case. To enforce the assessment, the U.S. Department of Justice on behalf of FinCEN filed a federal complaint in New York federal court. The DOJ also sought an injunction to prohibit Haider from working with any "financial institution" as defined in the BSA.

Haider then moved to dismiss the complaint, making several arguments, including that the BSA provision that he allegedly violated applies only to entities subject to the law—and not to individuals. The provision, Section 5318(h), of the BSA, which states that "[i]n order to guard against money laundering through financial institutions, each financial institution shall establish anti-money laundering programs …," does not apply to individuals like other sections of the BSA, which include specific requirements on directors and officers.

In response, the government suggested the court first look to the BSA's more general civil liability provision in Section 5321(a)(1), which does provide for individual liability, with only limited exceptions not applicable in this case. Specifically, the provision authorizes the imposition of civil penalties against a "domestic financial institution or nonfinancial trade or business, and a partner, director, officer, or employee of a domestic financial institution or nonfinancial trade or business, willfully violating this subchapter on a regulation prescribed or order issued under this subchapter (except sections 5314 and 5315 of this title or a regulation prescribed under sections 5314 and 5315) …."

U.S. District Court Judge David S. Doty agreed with the DOT's interpretation of the statute.

"Section 5321(a)(1)'s explicit reference to 'partner[s], director[s], officer[s], and employee[s]' demonstrates Congress' intent to subject individuals to liability in connection with a violation of any provision of the BSA or its regulations, excluding the specifically excepted provisions (i.e., Sections 5314 and 5315)." The court said the government could proceed with its case against Haider under Section 5318(h). "Because Section 5318(h) is not listed as one of those exceptions, the plain language of the statute provides that a civil penalty may be imposed on corporate officers and employees like Haider, who was responsible for designing and overseeing MoneyGram's AML program."

Judge Doty was not persuaded by Haider's other argument to dismiss the complaint as insufficient because the government failed to specifically identify the violations that composed the money penalty. The court said analysis of the penalty amount was premature, and Haider should use the discovery period to "fully explore" the basis for the penalty.

Challenging the requested injunctive relief, Haider contended that the effort to ban him from working for financial institutions was time-barred. The defendant pushed for application of the general five-year limitations period that governs actions brought by the United States because the injunction request was penal in nature. The government countered that the relief was remedial rather than punitive and therefore subject to a six-year period.

Considering whether the proposed injunctive relief was penal or equitable in nature, the court punted. The question "requires factual inquiry," Judge Doty wrote, with factors such as the likelihood that Haider will engage in similar misconduct in the future and the collateral consequences of the proposed injunction. He declined to decide the issue, deferring a ruling until he could consult "a well-developed factual record."

Finally, Haider argued that the government's assessment violated his right to procedural due process for reasons such as bias against him given FinCEN's prior work in the MoneyGram matter and his lack of review of the agency's materials in the case against him. The court rejected this argument, saying that the defendant's due process rights have yet to be triggered because he has not yet been deprived of a cognizable right.

Although Haider's property interests are ultimately at stake, the underlying administrative process had not deprived him of any interests—yet. "[T]he assessment procedure is merely the first step in the process," the judge said. "Haider will have a full opportunity to explore the government's case and his defenses in discovery, which will then be followed by a motion for summary judgment, trial, or both. Under these circumstances, the court cannot conclude that there has been a violation of Haider's due process rights."

To read the order in U.S. Department of the Treasury v. Haider, click here.