“I’d like to start off by thanking FIBA for the opportunity to speak at their 13th annual Anti-Money Laundering conference. It could not come at a more critical time. Investigations such as the HSBC case have reminded all of us how much is at stake in ensuring that your compliance efforts are equal to the challenges faced by your institutions. The work that you do is important to your institutions, to prosecutors, and to the integrity of the international economy. And yet, I think we’d also agree that, as crucial as it is, compliance work is a bit like housework: it seems nobody really notices it unless it’s not done.
“Every day, the programs you put in place, and the oversight you exercise, saves your institutions hundreds of millions of dollars, and even potential regulatory action or criminal prosecution. And yet I worry whether your institutions fully appreciate the contribution of your areas to their bottom line. I say that because, as a prosecutor, I often feel the same paradox.
“Prosecutors get banner headlines when we get a big conviction after trial for a heinous crime, or when we announce an indictment bringing down a vast conspiracy or financial fraud.
“But the truth is that, as important as those cases are, they are also, in a sense, the failures of the criminal justice system. They are failures because they represent instances in which we were unable to prevent a crime from occurring.
“This afternoon, I would like to speak to you briefly about how the New York County District Attorney’s Office is partnering with financial institutions in an effort to, first, prevent financial crimes before they occur, and, second when they do occur, quickly and expeditiously begin prosecution. Before I do that, I’d like to tell you a little bit about my Office.
“My office is the local prosecutor for the island of Manhattan. We have about 1.6 million residents in a 23 square mile area that sees an additional 2 million people commuting in and out every day. We also get about 60 million visitors a year. Some of those many millions who live and pass through have larceny in their heart, and among the 100,000 cases we filed last year were thousands of financial crimes, from the simplest petit larceny to the most complex international frauds. We consider that large volume a great asset in itself – every year my office prosecutes more cases than the entire United States Department of Justice nationwide, and this caseload, year after year, provides a vast reservoir of experience from which we draw regularly. Of course, Wall Street, the NYSE and the NASDAQ are located in Manhattan, making our county preeminent in the world financial sector. Therefore, our duty also includes combatting white-collar fraud, especially the kind of serious financial crime that is found in one of the world’s great financial centers.
“Our white-collar work occurs in what we call the Investigation Division. Alongside our prosecutors who focus on street crime, we have about 90 attorneys who investigate and prosecute all sorts of white-collar crime including large-scale Ponzi schemes, securities fraud, mortgage fraud, and insurance fraud.
“We also have a special focus on international prosecutions. In this, we are somewhat unique among local prosecutors’ offices. Our focus derives from our unique geography – so much of the world’s commerce and finance consist of transactions conducted in US dollars, and the vast majority of those transactions pass through banks in Manhattan. That gives us the jurisdiction and authority, indeed, the obligation, to investigate many kinds of conduct all over the world – if that conduct affects NY’s markets and institutions.
“The Manhattan DA’s Office has long believed that protecting New York’s financial institutions and markets from abuse is an important part of our mission. Put quite simply, it would make no sense for us to prosecute a shoplift from Macy’s only to overlook a multi-million dollar fraud on Wall Street. When it comes to financial fraud, we do not recognize any doctrine of “too big to prosecute.”
“That having been said, we are well aware that as local prosecutors, the great majority of our work falls under the category of “street crime,” and one of our highest priorities continues to be violent crime. But even here, I believe we have learned lessons from experience that can educate our investigation and prosecution of large-scale financial fraud – or the story of violent crime prosecution in New York has been a success story. In recent years violent crime in New York has fallen to the lowest levels in recorded history. Today, the murder rate in New York is less than one-fifth of what it was at its height in the 1990s.
“Criminologists argue about what contributed to this success story, and I suspect they will continue to argue for some time to come. But we in law enforcement have pretty strong views on what made a difference – and I believe those approaches can be applied with equal success by compliance professionals and prosecutors working to prevent and prosecute financial fraud.
“If I had to put it in a nutshell, I would say that what worked in reducing violent crime was a radical change in attitude. When I began as an assistant prosecutor in the early 1980s, violent crime was high, and every year it increased, with such regularity that it became to seem like a law of nature.
“And so the metrics for success became how many arrests the police made, and how many cases a prosecutor indicted. The police would assure the public that arrests were up, and prosecutors would announce that they had brought more cases, and had sent more people to prison. And then the next year, crime would go up again.
“Eventually, a movement began in law enforcement to change the metric. The new metric was not, are arrests going up or down, but is crime going up or down. For the Police Department, this new perspective was institutionalized in an initiative called Compstat. Compstat is a sophisticated data system that holds local police commanders responsible for preventing crime on a street-by-street basis.
“For prosecutors, this new approach meant focusing not only on prosecuting crimes after they occurred, but on breaking up those criminal organizations – from the most informal adolescent street gangs to the five families of the Mafia – as a way of preventing crime. It meant putting in place programs that offered young people positive alternatives to a life of crime. It meant restructuring entire industries so that organized crime could not infiltrate once our back was turned.
“Together, these approaches changed the landscape, so that now every year our constituents expect to hear, not of crime increasing, but of record declines. And because the new approach focused on preventing crimes before they happened, not only is crime reduced, but in New York the prison and jail populations are down as well.
“In my Office, the new approach has been institutionalized in initiatives like our Crime Strategies Unit, which combines sophisticated databases and analysis of crime patterns. Information that used to be dispersed across five hundred legal pads is now centrally collected and shared in real time.
“Our goal is to widen that kind of pro-active, preventative approach within the compliance community.
“In the past, some financial institutions set up compliance teams because they were ordered to do so; others built compliance departments because they wanted to prove their good faith if wrongdoing were ever uncovered. But I believe there has truly been a change in attitude through much of the financial sector. Today, we are here together because of a shared belief that with a creative approach, together we can go further, not only to investigate and prosecute frauds, but to prevent financial crimes before they occur. I would like to share with you some of the specific ways in which my office, with your help, is putting these new perspectives into practice.
“My Office is in the process of launching an exciting new initiative: our Financial Intelligence Unit. The new unit, which is a part of the Major Economic Crimes Bureau, will expand on a very successful initiative my office instituted to proactively review SARs. I know that you encourage your institutions to file SARs in the broadest possible range of scenarios, and I urge you to continue in that effort. Yet I also know that at times, SARs must seem to you like letters to Santa Claus – you send them, but you don’t know if anybody actually reads them.
“I can assure you that we read them, and we are reading more of them than ever before. In the last 2 ½ years, we have reviewed over 2,000 FinCen filings. And in our new Financial Intelligence Unit, we will have specially-trained analysts reading SARs every single day, tracing suspicious funds, identifying criminal patterns, searching for targets and developing new ones; in short, connecting dots. You will be relieved to know that we will be rotating analysts through this assignment so that no one is assigned to read SARs for more than two hours straight, for humanitarian reasons.
“These analysts will be trained in the detection of conventional financial crimes, but they will be cross-trained as well in fields like human trafficking, violent criminal enterprises, and exploitation of immigrant communities – because sometimes the first indication we have of those kinds of criminal syndicates will be a SAR or CTR filed by one of your employees.
“Wherever our analysts detect activity of potential significance, they will write a report for review by a senior attorney within Major Economic Crimes, who will determine what steps to take next.
“We have dedicated in-house sworn investigators, including two Secret Service agents assigned to our office, to assist in these follow-up investigations. We also have valuable active partnerships with the IRS and the FBI.
“This is an approach that has already yielded enormous benefits to our investigation of crime, and not just financial crime. While confidentiality requirements prevent me from linking specific cases to particular CTRs and SARs, I can tell you that the cases we have built include not just classic white collar fraud, but art theft, cyber fraud, sex trafficking, immigration fraud, and even a double homicide. Many of these investigations have crossed state and even national borders.
“In other instances, we have for jurisdictional reasons been unable to bring a case ourselves, but we have passed along critical leads to our partners in law enforcement in state and federal agencies, such as the Secret Service, the State Department, and the IRS.
“Indeed, one of the great lessons of these prosecutions is that for financial investigations to have real impact as a method of crime prevention, we must seek new ways to partner with other jurisdictions and federal authorities, as well as with you in private compliance departments.
“Many of you have lived through the six bank-stripping investigations and subsequent settlements that my Office and the United States Department of Justice have secured. As you are aware, in those cases, bank employees intentionally and systematically disguised the source of wire transfers that were being used, in violation of international sanctions, to finance transactions with rogue governments.
“It is a tribute to our partners in federal law enforcement that, working together, we were able ultimately to achieve record-setting settlements with the foreign financial institutions. And it is a tribute to compliance officers that, in more than one instance, we discovered New York banks communicating clearly to their offshore counterparts that they wanted nothing to do with disguised or illegal wire transfers.
“While these investigations resulted in the forfeiture of something in the area of three billion dollars in total, most importantly, it has resulted in a fundamental change in the way those banks – and we believe others – conduct their business, , and has heightened vigilance worldwide with respect to dealings with sanctioned entities.
“My Office remains committed to the investigation and prosecution of the illegal movement of funds in violation of international sanctions. You will see further evidence of that commitment in the coming months and years.
“Our involvement in these cases reflects our ability to detect, investigate, and ultimately dismantle key financial conduits of terror finance and global proliferation. And the crucial lesson that comes out of these cases is the importance of transparency. Without transparency in financial transactions, banks can never put in place the controls they need to conduct their business properly. And that’s why my message today is that the work you do, in protecting the transparency of financial markets and putting in place real controls, is of literally incalculable value to your institutions. The safety and soundness of New York’s banks – and all those banks that clear transactions through New York -as well as our security as a nation, are at risk if our banks are used to facilitate criminal activity.
“While it may seem counter-intuitive to suggest that we prosecute banks in order to protect banks, that statement is true. You are more aware than anyone that New York banks, and New York based branches of international banks, do not want to be used for the funneling of illicit payments, whether those payments are sanctions related or more common criminal proceeds.
“The partnerships we are forming today are so important, because when together we shut down a multi-billion dollar pipeline of illegal funds, we drive a wide range of dangerous enterprises out of business – all around the world. Let me be clear: we can and will prosecute criminally individuals responsible for international fraud; and we can – and very recently did – prosecute a bank when it was running an illegal enterprise. But there are few techniques so effective in shutting down a criminal operation as seizing money before it can get into the hands of criminals. And because New York is a financial hub for so many international transactions, we are often perfectly situated to do just that. I cannot think of a better example of preventing crime before it can be committed.
“A year and a half ago, we demonstrated a different aspect of our work related to sanctions enforcement when we announced the indictment of eleven companies and five individuals associated with IRISL – Iran’s state-sponsored national shipping line, which was sanctioned by the Office of Foreign Assets Control in 2008. IRISL’s ships transported Iran’s oil – its economic lifeblood. But those same ships also transported weaponry intended for Hamas and Hezbollah, and components intended for Iran’s military and nuclear programs. The sanctions are potentially devastating, because the international shipping industry runs on U.S. dollars. So long as IRISL was kept out of our financial markets, they would be out of business. And so, to continue operating, IRISL created front companies and utilized alias names through which to conduct its business. They renamed their vessels. The companies consisted of the same people, same addresses, same ships, and same business. The defendants in this case did this with the express purpose of fooling OFAC filters. And for a while they succeeded, causing Manhattan banks to process over 60 million dollars worth of illegal payments – until we were successful in shutting them down.
“We have also brought cases involving the use of New York financial institutions to launder ill-gotten gains from other countries. For example, we have worked closely with Brazilian authorities to prevent the movement of money – largely the proceeds of illegal activity in Brazil – by illegal money transmitters.
“In these cases, as well as in uncovering more conventional frauds, we have achieved gratifying results – but with your help, we hope to do more.
“To that end, we have been hosting meetings with small groups of AML and BSA officers to discuss trends in financial crime and to provide information to each other that will help in the detection and prevention of that crime. Prosecutors from my office have presented case studies to demonstrate some methodologies and suggest areas of focus for financial institutions. Among other things, we’ve discussed mortgage fraud, medical mills, human trafficking, and the bank stripping cases, distilling from our investigative experience the criminal methodologies we have seen, and sharing them with financial institutions in Manhattan so they can be better prepared to detect and prevent financial crime.
“We also recently conducted our third annual financial and cybercrime symposium, hosted by the New York Federal Reserve Bank and attended by about 400 people — state and local law enforcement, regulators, and BSA and AML officers from financial institutions in Manhattan and elsewhere.
“Part of what we talk about in these meetings is the importance of suspicious activity reports and the kinds of information that they should contain in order to be most helpful.
“There are steps you can take to be of even greater assistance to us.
“Your employees file SARs when they are suspicious, but for a SAR to trigger an investigation, the narrative has to be forthcoming about the reasons why the transaction was suspicious.
“The investigations that I mentioned briefly a moment ago, as well as many more, began not just because someone filed a CTR or a SAR, but because crucial details were included in a narrative – for instance, suspicions that the nature of the deposits was inconsistent with a depositor’s supposed business.
“The key is to see a SAR not just as a way to fulfill a reporting duty, but also as a powerful tool that can launch an investigation and prevent a fraud or other serious crime before it can be committed.
“Which brings me to my second point: the most useful crime detection technology ever invented is still the telephone.
“You should call us when your institution has filed a CTR or SAR that you want to call to our attention.
“You should call us when you become aware of information that doesn’t require filing of a CTR or SAR, but which you can share with us, and think we should know.
“You should call us when you’re not sure whom to call. We partner successfully with state, local, federal, and international law enforcement, and if we cannot use the information, we will be happy to direct it to someone who can.
“You know, veterans in law enforcement are fond of saying, “I’ve seen it all.” But when it comes to the kind of enforcement we’re talking about today, that attitude can be fatal. We haven’t seen it all, and neither have you. You can be sure that whenever your vigilance shuts down a money-laundering operation; whenever one of your employees blows the whistle on a scheme to circumvent sanctions; the next day someone starts work on a new method or scheme- something we haven’t yet seen – to launder those funds or evade those sanctions.
“That is why there is nothing routine about what you do – and nothing more important. You protect your institutions and our economy. You help to enforce international sanctions that preserve human rights and frustrate proliferation. The crimes that you prevent – the ones that never happened because you detected them before they could be committed – haven’t generated a single headline, and will never inspire a movie on HBO. But that is the whole point. That lack of drama means that you are succeeding. And so, you continue, in the private satisfaction of knowing that, every day, you make all the difference. Certainly, you make all the difference for us. And for that, I thank you.”