A blog article I wrote for HDCS - Higher-Risk Deposit Compliance Solutions
The Wild West of Banking Compliance
I began working in the compliance industry in January of 2003 when I joined the newly enhanced AML monitoring department for Western Union. While I had prior banking experience, this was my first experience in anti-money laundering monitoring. 2003 was an interesting time to be in the compliance industry as FinCEN and the State regulators were just coming to grips on what exactly the USA PATRIOT ACT meant for Money Service Businesses (MSB’s) like Western Union and Money Gram. What everyone did agree upon is that focusing just on money launderers or customers trying to avoid taxes (as mandated by the Bank Secrecy Act of 1970) was not enough. Banks and Financial services had to now monitor for terrorist financing as well. Thus, a new acronym was born – Counter Terrorist Financing or CTF; also known as Countering the Financing of Terrorist (CFT).
The attacks on September 11th and the way they were financed changed the meaning of compliance forever. In addition to the tried and true AML monitoring practices, Financial Institutions (FI’s) such as Banks, Credit Union and MSB’s had to develop monitoring policies and procedures for the detection and reporting of terrorist financing. Unlike the world of 2020, in 2003 we did not have the wealth of knowledge that is now compiled on the internet to help show us the way to develop or shortcut programs, nor did we have the consulting industry (with its years of experience) to lean on. Most of us developing these compliance programs had to do it from scratch and hope we and they were good enough to pass muster with Federal and State regulators. I call this time of my career the wild west period. This was the time when compliance departments would call on all their staff to come up with ideas on the best way to update the monitoring program to incorporate the new requirements. There were no bad ideas. Okay, there were some. But, any and every idea was considered and discussed. We simply tossed them on the wall and then debated and vetted them to see what would stick. I’m sure that every financial institution from 2003-2006 has similar stories of how they adapted and overcame to build what they thought or, at least, hoped would be a program strong enough to meet the new monitoring and reporting requirements.
My Lightbulb Moment
While I cannot speak for non MSB businesses such as credit unions and banks, at Western Union a regulatory exam during this time period was a time of extreme stress and anxiety. In 2006, I moved from the AML monitoring department to the regulatory exam and audit department. It was now my job to prepare for and manage the numerous regulatory exams that Western Union had every year. But what created most of my personal stress, was that the regulator would be auditing the AML / CTF monitoring program that I played a part in building. During the first two years I was in the department I stressed over each audit. I feared any negative findings or comments from the regulators. In most cases my fears were overblown. While a few findings were identified during those first two years, I soon realized that instead of trying to “bust” us with fines and violations like I feared, the regulators were more concerned with knowing that we indeed had a program and wanted to offer constructive feedback on how we could improve the monitoring program. It was a true lightbulb moment in my career, and I lost my fear of the regulators and instead looked at them as partners, help me to make our program better for our customers. They were interested in helping us create a best practices compliance program.
Fast forward to today and I see very similar challenges to creating a safe and cost effective cannabis banking compliance program. It is a different kind of “wild west” for banks and credit unions who are engaging with cannabis, but the principles are still the same. Financial institutions need to make sure their customers are legal and compliant and do their best to prevent money laundering. Even though many States have passed laws to legalize cannabis, it is still illegal at the federal level. This has created an absence of regulation and guidance on how to safely provide financial services to the cannabis industry., which naturally has the board of directors at many banks and credit unions reticent to take on the risk at their institution. In fact, most the BSA Officers I talk with have told me that their Board has made the decision to not bank cannabis at all and for the BSA department to terminate any CRB’s they find during their regular monitoring. The Boards, they tell me, are worried that they could lose their charter or face fines or penalties from the federal government if they allow the CRB’s to stay.
To the best of my knowledge, no state or federally chartered financial institution has been fined or had their charter revoked by the regulators solely for allowing CRBs (Cannabis Related Businesses) into their institution. While the FI’s might receive findings or even violations, these have more to do with the FI’s lack of a monitoring program or turning a blind eye towards potential CRB’s in their system. In fact, turning a blind eye may represent the greatest risk. With the right level of training, enhanced due diligence and a robust CRB monitoring program, a FI can safely allow CRB’s into their system confident that are actually helping law enforcement regulate a cash intensive industry that is in need of help.
HDCD has Built a Roadmap In early 2020 I made the switch from 17 years at MSB’s to HDCS, a company that specializes in helping banks and credit unions figure out where to start with a cannabis banking program. I am excited about this new path my career has taken and eager to use my knowledge and experience in assisting FI’s take on the rewarding but challenging endeavor of banking CRB’s. HDCS provides “soup to nuts” content on creating a safe, sustainable and successful cannabis banking program. We aggregate solutions and monitoring between our client banks to create a more cost effective and sustainable solution. We can assist you in creating a customizable program that will meet the risk appetite of your financial institution and produce a sustainable new profit center. We would be happy to meet with you to understand your objectives and share our view of the best practices involved in establishing a safe and profitable cannabis banking program. Use this link to schedule a video conference at a time that is convenient for you and your team.
Chris Gunias HDSC, Inc. / Chief Compliance Officer
