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Iran leads challenges for new U.S. anti-money laundering chief

Reuters News
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Posted: Sep 21, 2012 5:04 PM
Iran leads challenges for new U.S. anti-money laundering chief

By Brett Wolf

ST. LOUIS, Sept 21 (Thomson Reuters Accelus) - Former Justice Department official Jennifer Shasky Calvery takes over at the U.S. Treasury Department's anti-money laundering bureau on Monday, with the task of reviving the beleaguered agency amid pressure over Iran sanctions and enforcement policies.

Shasky Calvery, a former prosecutor experienced in dismantling international crime organizations and tracking down their money, will now face a set of different challenges as head of the Financial Crimes Enforcement Network: stepping up the fight against money-laundering without unduly antagonizing banks, current and former government officials and banking industry sources said.

FinCEN, a 300-person agency, has dragged its feet in issuing regulations, authorized in a 2010 law, aimed at cutting off Iran's access to financial services. It's even lagged behind other U.S. regulators in cracking down on bank violations.

Critics, including some on Capitol Hill, have questioned FinCEN's priorities and competence. Some said the bureau has focused too much on mortgage fraud and too little on international money laundering, terrorism and rogue regimes.

"Treasury had an agenda to really go...where they were seeing money-laundering problems, but they couldn't get FinCEN to focus on that," a source aware of the situation said.

U.S. Senators Dianne Feinstein, Chuck Grassley and Sheldon Whitehouse complained publicly in a March 2011 letter to Treasury Secretary Timothy Geithner that FinCEN was slow in making rules for prepaid cards, amid concerns about the cards' potential for abuse by drug traffickers.

FinCEN's obligation to enforce the Bank Secrecy Act, the primary U.S. anti-money laundering law, makes the directorship a higher profile assignment than Shasky Calvery's previous role as head of the Asset Forfeiture and Money Laundering Section at the Justice Department.

Shasky Calvery also must rebuild a strained rapport with the main Treasury Department, including its Terrorism and Financial Intelligence office. That office is run by Under Secretary for Terrorism and Financial Intelligence David Cohen, her new boss who assumed his position last year.

Most of the sources interviewed for this article would speak only on condition of anonymity.

Departing FinCEN Director James Freis Jr. was dismissed by Cohen after he refused to resign in May. Friday was Freis' last as head of FinCEN. He will remain in an undermined role at Treasury, a source familiar with the situation said.

Conflicts over personality and policy between the two men in were the reasons for the firing, sources familiar with the issue said.

Freis took seriously his statutory mandate to support law enforcement and looked for guidance on priorities not from Treasury, but from the Justice Department, a top consumer of the data FinCEN collects from financial institutions, a source familiar with his tenure said.

Since Freis took over FinCEN in 2007, it levied less than $195 million in penalties against 21 people and financial institutions.

The fight against mortgage fraud was one of Freis' top priorities. Other issues of importance to Treasury's Terrorism and Financial Intelligence office, such as using FinCEN to help prevent foreign banks from aiding drug traffickers, terrorist groups and regimes that threaten U.S. national security, were marginalized, the source said.

Freis, Cohen and Cohen's predecessor Stuart Levey, who joined Britain's HSBC Holdings Plc in January as chief legal officer, all declined to comment. Freis has not commented publically on his departure.

A FinCEN spokesman was unable to make Shasky Calvery available for an interview.

TRACKING CUSTOMERS IS A PRIORITY

Shasky Calvery has an established relationship with Cohen and the terrorism office through her role at the Justice Department's asset forfeiture and money laundering office having worked closely in probing foreign banks suspected of violating U.S. sanctions.

They also worked together on policy over the responsibility of financial institutions to determine the true ownership of companies with which they do business, sources familiar with her work at Justice said.

Developing such "know-your-customer" rules sits atop FinCEN's agenda.

Shasky Calvery must strike a balance between legal authorities who "would love to have every piece of information that ever existed about financial transactions," and a financial services industry that would rather escape "the very expensive record-keeping and reporting and due-diligence requirements," of anti-money laundering laws, said Peter Djinis, a former FinCEN associate director credited with developing some of the anti-money laundering regulations.

Similarly, Shasky Calvery and FinCEN will be expected crack down harder on illicit financial transactions.

The terrorism office will expect her to make more use of the post-September 11 USA Patriot Act, which empowered her agency to sever any foreign financial institution found to be a money-laundering threat from the U.S. financial system.

That power was invoked against financial institutions on a dozen occasions during the five years before Freis' directorship. It was used just twice - against Lebanese Canadian Bank and JSC CredexBank - during his five-year stint.

A Senate panel has given Treasury a public drubbing over their perceived failures to fight money laundering.

The department is tightening sanctions aimed at Iran's nuclear program and expects FinCEN to help prevent Tehran from shuffling money around the world.

And, former Treasury officials said, FinCEN must step up to the plate and pursue U.S.-based banks that fail to meet their anti-money laundering obligations.

FinCEN, instead, seems to have let other regulators expose, fine and sanction banks that have been caught in high-profile, anti-money laundering schemes.

Of the 11 enforcement actions FinCEN took last year, seven were against individuals and their small businesses. Three banks were penalized a total of $25.9 million and a casino paid $250,000. FinCEN has not announced any enforcement actions so far this year.

Meanwhile, Treasury's Office of Foreign Assets Control (OFAC), also overseen by Cohen's office, has partnered with the Justice Department and New York prosecutors to target a number of banks accused of processing transactions for Iran and other blacklisted countries.

Billions of dollars in fines and forfeitures have been collected by OFAC and its partners during the past few years, grabbing the attention of global banks. FinCEN must make noncompliance with anti-money laundering rules similarly risky for big banks, the sources said.

Some banking industry officials expressed concern that Shasky Calvery might go too far. In her previous role at the Justice Department, she oversaw a reorganization designed in part to crack down on financial institutions seen as having egregious anti-laundering lapses or complicity with criminals.

That work has not yet resulted in high-profile prosecutions, but she recently told Reuters that several cases against both banks and non-bank financial institutions were pending.

"If the view is that Bank Secrecy Act regulatory requirements are a trap for financial institutions -- like a speed trap that exists not to protect the public but to generate revenue -- you're going to get very little cooperation from the financial services industry," Djinis said.

(This article was produced by the Compliance Complete service of Thomson Reuters Accelus. Compliance Complete http://accelus.thomsonreuters.com/solutions/regulatory-intelligence/compliance-complete/ provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 230 regulators and exchanges.)

(Editing by Randall Mikkelsen and Leslie Gevirtz)