There are fewer and fewer players who are lifers for one team. When it comes to lifers who were managers the list is even shorter. Tommy Heinsohn was a player, coach and announcer over some 60+ years with the Boston Celtics. Yet Tommy Lasorda was a true baseball lifer for the Dodgers, first the Brooklyn Dodgers and after they moved west, the Los Angeles Dodgers. He began a very short playing career in the Brooklyn Dodgers organization in 1948, making to the majors in 1954 and 1955 for, as noted in his New York Times(NYT) obituary, “a total of 13 innings for Brooklyn in the 1954 and 1955 seasons, with no wins or losses, then was cut in favor of a young left-hander named Sandy Koufax.”
Yet that was only a blip on his time with the Dodgers. “After retiring as a pitcher in 1960 with 14 years in the minors behind him, he was a Dodger scout, managed in the team’s farm system and coached for the Dodgers for four seasons before succeeding [Walter] Alston as manager” in 1976.
He won two World Series with the Dodgers, in 1981 and 1988. “After he retired from managing, with a career record of 1,599 victories and 1,439 losses, Lasorda was named a Dodger vice president. He scouted for the team again, was an interim general manager for the second half of the 1998 season when Fred Claire was fired, and became a senior vice president that September, representing the ball club in good-will appearances. He remained a representative for the franchise in the post of special adviser to the Dodger chairman until his death.” He was known for only talking about baseball and Italian food. As I said a true lifer who bled Dodger Blue.
Lasorda was a link with the fabled Dodger past of Ebbets Field, Jackie Robinson and “wait ‘til next year”. He introduces today’s topic which is the recently resolved Capital One, National Association (CONA) Assessment of Civil Money Penalty (Order), brought by Financial Crimes Enforcement Network (FinCEN). Matt Kelly wrote a comprehensive blog post on the enforcement action in Radical Compliance this week. There were four major components to the enforcement action: (1) poor compliance operationalization; (2) negligent risk management appraisal; (3) trusting but not verifying the business explanations of red flags in their operations of Check Cashing Group (CCG); and (4) massive failures to file Suspicious Activity Reports (SARs). I want to focus on the first two and what they may portend for Foreign Corrupt Practices Act (FCPA) enforcement actions going forward.
As noted by Kelly, the Order discussed that “Capital One failed to implement a sufficiently strong AML compliance program even when the bank knew it had inherited significant problems from the Hibernia and North Fork acquisitions.” However, it was clear from the Order that “Capital One did build up an AML compliance team and even developed policies, procedures, and controls for an enterprise-wide AML compliance program.” Yet, as Kelly stated, “However, these controls and procedures were inadequate to address the money laundering risk associated with the CCG, were inconsistently and ineffectively implemented for CCG customers, were plagued by a number of technical failures that were not promptly addressed, and gave too much credence to dubious explanations from the business line about CCG banking activity, all of which ultimately resulted in a failure to guard against money laundering and other criminal and suspicious activity.”
FinCEN is saying there was too much attention on the “compliance program design, and not enough on program execution.” FinCEN did not say it was a paper program, created so that Capital One could claim some type of compliance defense. The FinCEN Order makes clear there was a lack of operationalization of the compliance program. All of this is just another way of saying the compliance program was not effective.
The next area was the Capital One risk management program around customer due diligence and reviews. Here the Capital One compliance function “developed a spreadsheet formula that aggregated the credits and debits of a CCG customer under review, and then compared that analysis against a sample of historical transactional data.” However, even when a Red Flag was raised if these transactions were “related to the customer’s business model or could be readily explained away, the compliance team deemed the departure from historical norms “reasonable” and closed the review.” FinCEN found this approach was suboptimal as compliance analysts ended up relying too much on consistency of transactions as the basis for judging suspicious activity, “without taking additional investigative steps or incorporating additional knowledge about the customers.” The Order stated, “In other words, “Capital One improperly used consistency as the primary benchmark for reasonableness, overlooking the nature or apparent lawful purpose of their customer’s underlying activity and the patterns therein.””
This is but another way of say that the Capital One compliance function was substandard in its operation of the risk management program around customers. This is in the face of no examples put forward of this negligence. Once again this is saying the risk management program for customers was not effective.
Capital One was fined $390 million (with a credit of $100 million for a previously paid fine) so the total penalty under the Order was $290 million. A large part of that fine was for having a compliance program which was not effective. For those compliance professional out there you should look very closely at this Order. If the Department of Justice (DOJ) applies this same standard to anti-corruption compliance programs under the FCPA it would be a very large game-changer. It could certainly lead scrutiny of the actions of Chief Compliance Officer (CCO) in any decisions they might make, which could then lead to subsequent liability.
Just as Tommy Lasorda was a part of and led the Dodgers for many years, the prosecutorial evolution continues. This prosecution involved FinCEN and the financial industry. It may however portend a change by the DOJ in civil prosecutions in commercial operations.
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© Thomas R. Fox, 2021