New York – New regulations proposed by New York Governor Andrew Cuomo on Tuesday would require banks operating in the state to adopt rigorous measures to prevent money laundering and the financing of terrorist groups.
The proposed regulations will, among other things, require a bank’s chief compliance officer to certify whether a bank maintains the types of systems outlined in the rule to detect and prevent illicit money transfers, said the New York Department of Financial Services (NYDFS), the state’s financial regulator, which is writing the rules.
Chief compliance officers could face criminal penalties for filing false certifications, according to the proposal.
Cuomo, as Democrat, unveiled the proposal as the U.S. is ramping up efforts to cut off funding to Islamic State.
The measures have included everything from screening thousands of financial institution reports for signs of Islamic State-linked activity to striking the group’s oil infrastructure in Syria, a strategy that the U.S. says diminishes the group’s black-market earnings from oil by about a third.
Former NYDFS superintendent, Benjamin Lawsky, first publicly discussed the planned state regulations in a February speech.[L1N0VZ2AV]
The regulations stem from “serious shortcomings” uncovered during a series of investigations over the past four years focusing on terrorist financing and anti-money laundering compliance at financial institutions that have branches in New York, NYDFS said on Tuesday.
Systems to monitor for and filter suspicious transactions and customers fell short in some cases, it said.
“A lack of robust governance, oversight, and accountability at senior levels of these institutions has contributed to these shortcomings,” the NYDFS said.
The proposed rules, which would also require beefing up computerized programs that automatically block transactions by suspicious individuals, are similar, though not exactly the same, as existing federal regulations, said Rob Rowe, a lawyer with the American Bankers Association.
Federal regulators have traditionally developed and policed anti-money laundering measures. New York’s proposed requirements would create new responsibilities solely for banks that are chartered in New York State.
The new state-specific requirements could lead to confusion and gaps that criminals could exploit, Rowe said.
The regulations could ultimately be another tool for NYDFS, which has engaged in an aggressive approach to enforcement and steep fines in recent years, mostly against European banks with branches in the state.
Banks have 45 days to comment on the proposal.