Issue link: https://digital.shearman.com/i/1389983
16 new registry to avoid duplicating existing customer due diligence regulatory burdens and instead create a streamlined reporting process that will be more useful to both financial institutions and regulators. Additionally, the commenters have requested further guidance on precisely what kinds of entities will be required to register, advocating for a broad scope to cover both known vehicles used to shield criminal activity and new corporate structures that may develop as corrupt individuals seek to avoid the registry's ambit. In compliance with its requirements under the newly minted AML Act, FinCEN announced its first set of enforcement priorities on June 30—setting initial objectives for compliance personnel to be mindful of as they establish or update their company's compliance programs. The priorities encompass eight distinct categories of misconduct, including corruption and terrorist financing, and provide a set of guiding compliance concerns. Further guidance, like this announcement (however sparse in detail), will surely be welcomed by compliance stakeholders. THE NEW YORK CITY BAR ASSOCIATION ANNOUNCES FRAMEWORK FOR DETERMINING WHETHER TO CHARGE CHIEF COMPLIANCE OFFICERS Professionals in the compliance space have long sought a more prescriptive structure to evaluate when the conduct of chief compliance officers violates their legal obligations and incurs individual liability. In June 2021, the New York City Bar Association released a proposed framework of analysis for regulators to consider when reviewing the actions of chief compliance officers and determining whether the CCO's failures to meet their obligations under federal securities laws merited individual charges against the CCO. The specter of individual liability looms increasingly large as both regulators and firms themselves begin to take increased action against both employees directly responsible for alleged criminal conduct as well as corporate officers who presided over a system that allowed such conduct to continue. Indeed the personal costs to corporate officers have made headlines this year—Goldman Sachs cut the pay of its president approximately 36% to the tune of $10 million, in part as acknowledgement of the firm's failure to prevent the illegal bond transactions of the 1MDB matter. The bank also implemented similar measures against other top executives despite their lack of personal involvement in the scheme. While individual financial penalties may sting, CCOs have more significant concerns regarding the criminal liability that could attach to their own conduct. These concerns prompted the NYCBA's creation of a new framework that highlights the complex environments CCOs operate within—juggling legal obligations, compliance resources, and personal employment concerns—all while operating with the threat of individual liability, knowing that hindsight could well recolor their best efforts as a "wholesale failure" to perform their duties. Believing that CCOs and regulators are ultimately partners in working to reduce compliance failures, the NYCBA argues that both would benefit from greater clarity in delineating where a CCO's failures require individual accountability. The NYCBA's framework provides that clarity by suggesting a set of affirmative and mitigating factors for regulators to consider when reviewing a CCO's conduct, and it offers a couple of suggestions with respect to improved communication from regulators when handling such cases. The bulk of the framework lies in the affirmative factors, favoring an approach which focuses on compliance through deterrence. It contains a primary "General Factor," several considerations for "Wholesale Failure" determinations, and factors for considering "Active Participation in Fraud" and "Obstruction." The "General Factor" asks regulators to make an initial determination whether pursuing individual liability for a CCO fulfills enforcement goals of deterrence, considering both the efficacy of attributing to an individual what is often a systemic failure and the risk that overly stringent enforcement would simply drive potential compliance officers into positions with lower levels of liability. These factors also emphasize that the SEC should focus its attention on egregious activity when considering whether conduct constitutes "Wholesale Failure," "Active Participation in Fraud," or "Obstruction," as pursuing cases where the lines are unclear could lead to inequitable results and fail to provide meaningful guidance to well-intentioned CCOs. Complementing the affirmative factors laid out by the NYCBA, the organization urges regulators to also consider several mitigating factors, noting that CCOs should hardly be held personally responsible when their hands were tied by under-resourced programs and should be rewarded for efforts to voluntarily disclose and cooperate. In addition to these factors, the framework concludes with a request for an ongoing dialogue that encourages both formal and informal communication between regulators and compliance officers which may see the framework adopted elsewhere, amended, or otherwise used as an important discussion springboard. While the specific focus of this framework was on the SEC's enforcement of the securities laws, it is likely that it may also be influential in other contexts, including the DOJ's enforcement of the FCPA.