Salvatore LaScala is a Managing Director at Navigant Consulting, where he is Co-Lead of the Global Investigation and Compliance and Anti-money Laundering (AML) Practices. Mr. LaScala has over 20 years experience conducing AML and Sanctions compliance programme reviews, Risk Assessments, Monitorships and Remediations and regularly assists his financial services clients with Navigating regulatory or law enforcement actions. Mr. LaScala also applies his expertise by assisting clients with AML & Sanctions optimisation services that increases the breadth and scope of risk coverage while making the programme more efficient. He oversees Navigant’s AML Technology Team and has helped develop STAR, Navigant’s proprietary Case Management System and Rules engine regularly utilised for AML Look-Backs, Sanctions Look-Backs, CDD Remediations and other compliance and investigative projects. Additionally, Mr. LaScala provides his clients with outsourced Financial Investigation Unit (FIU) teams to both augment existing FIUs on a permanent basis or by providing FIU Surge protection services whereby the Navigant team is deployed to handle an increase in investigative or compliance activity pursuant to a compliance technology transformation or acquisition of another institution or large scale customer on-boarding.
Mr. LaScala began his career as an accountant, attorney and Special Agent with the IRS Criminal Investigations Division of the Treasury Department and thereafter spent over 20 years providing AML compliance and investigative services. He has been with Navigant since 2010.
This month, Finance Monthly had the pleasure to connect with Mr. LaScala and discuss AML in the US and the impact that AI, Machine Learning and Robotics Process Automation have had on the sector.
What drew to the AML field? What excites you about the sector you work within?
My background initially drew me in. As an accountant, attorney and former law enforcement officer, it all came together initially with a consulting job in 1997 with a Big 4 firm specialising in AML and Forensic Accounting. I enjoyed both but spent far more time in AML. I loved developing and dispositioning AML and Sanctions alerts and constantly found ways to make the process more comprehensive and efficient. Eventually I developed ways to make large scale AML remediations, including Look-Backs more efficient by building rules engines, false positive review platforms and custom case management systems. My perspectives as an accountant, attorney and former law enforcement officer helped make these technologies, auditable, regulatorily responsive and feature rich for investigators, respectively. These days I am still excited to be involved because I like working with clients, and because the regulations, financial institutions, and money launderers constantly change. It’s constant learning, which works for me - otherwise I’d be bored.
What is the current state of AML in the US?
This is a very important time for AML compliance - regulators, examiners and law enforcement now know more about AML programmes, compliance technology and payment platforms than ever before, and as such, the stakes for financial institutions regarding compliance become increasingly higher. Financial institutions are quickly adapting and upgrading their technology and overall programmes to maintain compliance and prevent and detect money laundering, terrorist financing and fraud. The ‘bad guys’ however, seem to have far more payment methods and venues at their disposal to commit crimes than ever before in history.
What are some of the key challenges you face on a daily basis and how do you overcome them?
The key challenges include finding innovative and cost effective ways to serve our clients, who are often faced with fines and expensive remediations. Providing the right breadth and depth of services to them in a cost effective way is critical. We also work for financial institutions of all different shapes and sizes, some have been through enforcement actions two or more times and are in a position to better plan their way through those actions with a great appreciation of the effort it takes. Others have either not been through too many regulatory or law enforcement actions, or are unable to communicate to a home office in a foreign country the gravity of a US regulator or law enforcement action, and don’t get the financial support they need to get through it. The challenge in both instances still becomes handling ongoing work or “business as usual work” (BAU) along with regulatory action or some compliance technology transformation. Without consultants helping, there are just not enough hours in the day. Regardless of a financial institution’s capacity to respond to a regulatory action, it’s often best if we get in there early and get them off to a timely start so they don’t also fall behind on BAU, or react to regulators too slowly, which can lead to additional issues.
What are the current AML issues and solutions affecting American businesses?
AML is constantly undergoing transformations. Some of these are based on new and emerging AML and Fraud schemes that the industry has to respond to, other transformations are due to new regulations, such as NYSDFS Part 504 regulations, which add additional layers of accountability on AML programme owners. Still, other transformations are the result of enhancing the regulations and the technology behind it because every time we close a door on money launderers and fraudsters, they both seek out institutions without robust compliance and find new venues through which to launder money. The US and several other markets are attractive to money launderers, fraudsters and terrorists because the financial services industry is vast and because these markets are segmented. This means that some players in capital markets or money service business spaces are very technologically savvy with respect to compliance, while other smaller players in the same segment are not. In fact, we often see challenges where the larger and more sophisticated financial institutions de-market or close customer/client accounts which later pop up at smaller or less sophisticated financial institutions.
How has the introduction of Artificial Intelligence, Machine Learning and Robotics Process Automation impacted compliance and investigative solutions?
Navigant is highly focused on applying Artificial Intelligence (AI), a form of Machine Learning (ML) and Robotics Process Automation (RPA) to our clients in many different areas, including AML and Sanctions. For AML example, we believe that AI/ ML can help existing AML Transaction Monitoring Systems deliver enhanced detection scenario parameters by grouping behavioural patterning to cover more risk and produce fewer false positives. Concurrently, we are applying RPA to the expedite portions of the dispositions of such alerts by removing mundane rote tasks from the analysts purview so that he/she is spending more time on considering the facts, CDD, news and current transactions to determine whether the transaction should be filed on, and less time hunting for data and writing the disposition. Specifically, AI/ML, which helps increase coverage and reduce false positives, and RPA which provides the Investigator more time to analyse the actionable items, are remarkably powerful together.That said, there is a fair amount of work to do, and in the beginning, we need to focus AI/ML only on matters for which the data feed is clean and comprehensive and apply it in a way that is transparent and can readily be described to regulators, examiners and internal audit. The AI/ML revolution won’t survive if the providers that developed it and the financial institutions that use it are not completely transparent. Moreover, even RPA will be better received if it is introduced in stages and when implementations are accompanied by statistically valid data showing that it is more accurate, and saves time such that the ultimate work product contains more thoughtful analyses and is generating comprehensive filings useful to law enforcement.
Finance Monthly speaks with Alma Angotti - Managing Director and Co-head, of Navigant Consulting, Inc.’s Global Investigations & Compliance practice, based in the company’s Washington DC office. With her 35 years of public and private sector legal, regulatory, and consulting experience, Alma currently works with financial institutions to, among other things, help them develop, implement, assess, and enhance anti-money laundering (AML) and counter-terrorist financing (CTF) compliance programs required under the Bank Secrecy Act (BSA). She provides BSA/AML/CTF and Sanctions training. She also assists financial institutions in designing their own BSA/AML/Sanctions training policies and programs, conducts investigations and transaction look backs and provides training on AML compliance, examinations, and investigations to regulators globally.
In your opinion how robust is current anti-money laundering (AML) regulation? Is there anything that could be improved?
Legislatively speaking, the current US AML laws are robust.
One important gap in the AML laws is that Investment Advisers are not currently required to comply with the BSA. Investment Advisers sometimes have implemented AML compliance programs as a matter of best practice, but they have no obligation to file Suspicious Activity Reports. Because there is no enforcement mechanism, it is unclear how effective their programs are at detecting money laundering, terrorist financing, and other financial crime. There is a rule proposal that has been pending for several years. I think this is a risk area for the US and global financial systems.
Another area for potential improvement includes a legislative mandate for all companies registering in the US to include beneficial ownership information as part of the registration process and better cooperation among secretaries of state to assist in the identification of potential shell companies and corporations. Requiring the identification and information on the ultimate beneficial owner of a company deters shell companies and corporations from misusing registration systems and entering the US financial market. Understanding the beneficial owner of a customer account, or the ultimate beneficial owner of a financial transaction, are key elements for financial institutions to understand their customers and assess customer risk appropriately. Additionally, if the customer engages in suspicious behaviour, or suspicious transactions, knowing the ultimate beneficial party is integral to any potential law enforcement investigation.
Another area needing enhancement is the ability to share information with law enforcement and between financial institutions more easily. There is currently a US House bill introduced on this subject, H.R. 5783, the Cooperate with Law Enforcement Agencies and Watch Act of 2018. This bill limits a financial institution’s liability for maintaining a customer account in compliance with a written request by a federal, state, tribal, or local law enforcement agency. Additionally, the federal or state agency may not take an adverse supervisory action against a financial institution with respect to maintaining an account consistent with this request.
Beyond legislation and regulatory rule-making, however, consistent and robust enforcement of existing laws, rules, and regulations is critical to ongoing compliance by financial institutions.
What are the current AML issues and solutions affecting businesses and individuals operating in the US?
Some emerging issues that will impact financial institutions are the wider use and holding of cryptocurrencies, virtual currency exchanges (VCEs) looking for banking services, and issuers of initial coin offerings (ICOs) looking for broker-dealer and clearing platforms. Many banks and broker-dealers are de-risking and not providing banking services to VCEs and other high-risk clients (e.g. companies in the medical marijuana industry and customers holding penny stock portfolios) to save on BSA/AML/Sanctions compliance costs. As US regulators of financial institutions rush to regulate these emerging trends, financial institutions are struggling with how to take on these risks without running afoul of ever-changing regulatory expectations.
BSA/AML/Sanctions compliance related to cryptocurrency transactions and performing appropriate due diligence to know your customer when onboarding a VCE is further complicated in the US by the lack of a consistent regulatory definition of cryptocurrency. While many countries view cryptocurrency as currency or legal tender, the US regulatory authorities and law enforcement currently do not agree on whether it is legal tender, a security, or something else. For example, in a 2013 Guidance, FinCEN defined virtual or cryptocurrency as a ‘medium of exchange’ that operates like a currency in some environments but does not have all the attributes of real currency or operate as legal tender in any US jurisdiction. Whereas in 2016, the SEC suggested that cryptocurrency is a security. The Commodity Futures Trading Commission currently believes that it is a commodity, while the IRS views Bitcoin and the like as property that should be taxed.
Regarding ICOs, issuers are coming to consultants like Navigant to help understand unclear regulatory requirements, and broker-dealers are seeking advice on how to underwrite these issuers or onboard ICO companies to their platforms while continuing to comply with BSA/AML/Sanctions compliance laws, rules, and regulations.
What are the AML challenges affecting businesses operating cross-border transactions?
Growth in the volume of cross-border transactions, and greater integration of the world’s economies, have increased the risks that banks and financial institutions face in processing these transactions. Most financial institutions, however, still face challenges that diminish the efficiency and effectiveness of their AML/CFT programs such as: poor data quality and fragmented data sources; outdated technology; poorly tuned transaction-monitoring systems, resulting in high rates of false positives; and the continuous launch of new and complex products and services.
Another major challenge to businesses operating cross-border transactions is the advent and use of mobile payment processing services, and the use of mobile phone payment services, to pay third parties. Millennials are leading this trend by texting cash to friends and third parties, using apps such as Venmo (owned by PayPal), Square Cash or Cash App (owned by Square), Apple Pay, Samsung Pay, and others linked to social media apps like Snapchat. These payment systems obscure whether the transaction is a cross-border transaction, as well as significantly complicating issues such as who the ultimate beneficiary of the transaction may be.
Why is it so important to take an active stance on AML? What are the penalties associated with AML in the US?
Terrorism and transnational organised crime take a terrible toll on societies. The horrific terrorist acts we have seen over the past 20 years cost money and were financed by someone. Our AML/CTF and Sanctions laws, rules, and regulations are in place to stop and deter terrorists from using our financial institutions to finance terrorism, and to stop criminals from laundering the proceeds of other abhorrent practices such as human, sex, or drug trafficking, financing weapons of mass destruction, and nuclear proliferation. Financial institutions play a critical role in protecting the US and global financial systems from these bad actors. We all must be vigilant in this fight.
The importance of financial institutions’ role in fighting terrorism and keeping proceeds of illicit practices out of our monetary system explains the steep penalties for violations of these rules. Individual penalties can range from $500,000 to $1 million (such as the case of Thomas Haider of MoneyGram International) and up to 20 years in prison. Fines for financial institutions vary by regulator and violation. According to Bloomberg,[1] in the first quarter of 2018 alone, federal banking regulators and FinCEN concluded two major AML enforcement actions with almost $1 billion in forfeitures and penalties, the highest ever annual total for federal authorities.
Financial institutions are arguably the most at risk from fraud. What measures can they take to ensure fraudulent behaviour is minimised both internally and externally?
There are many steps financial institutions can take to minimise fraud risk, but at the core of these steps is training and the four-eye principle. Potential fraud — whether internal or external — is significantly reduced by proper training of all staff on the red flags of fraud. Risk is further reduced by ensuring that all processes include more than one set of eyes (i.e., two people — four eyes). Ideally, for transactions most at risk for potential fraud, financial institutions would have a supervisor or quality assurance/control person review the transaction in addition to the employee originating the transaction. A properly tuned transaction-monitoring alert system would then identify any anomalies or potentially suspicious activity post-transaction, further minimising risk.
What changes would you like to see implemented in AML legislation, both nationally and internationally?
As I stated above, I believe it is past time for US regulatory agencies such as the Department of Treasury and FinCEN to assert regulatory authority and oversight over Investment Advisors as financial institutions under the BSA and other AML laws, rules, and regulations. Internationally, it would be ideal to have a centralised repository of beneficial ownership information accessible to financial institutions and law enforcement. Efforts are beginning in some countries to centralise this information, but privacy laws and concerns about confidentiality are often a stumbling block to the sharing of this type of information.
About Navigant
Navigant is a specialised, global professional services firm with focus on industries and clients facing transformational change and significant regulatory or legal pressures. Navigant provides a range of advisory, consulting, outsourcing, and technology/analytics solutions, primarily serving clients in the financial services, healthcare, and energy sectors. Headquartered in Chicago, the company has approximately 5,900 employees across North America, Europe, the Middle East, and Asia-Pacific.
Website: https://www.navigant.com/
[1] Robert Kim, “Q1 Ends with Record $1B in Federal Anti-Money Laundering Penalties and Forfeitures,” Bloomberg Law, April 6, 2018.
For our May edition, Finance Monthly has the pleasure to connect with Salvatore LaScala. With over 20 years of hands-on experience to conduct investigations and compliance reviews on behalf of financial institution clients responding to regulatory or law enforcement matters concerning anti-money laundering, Bank Secrecy Act, USA PATRIOT Act and Office of Foreign Assets Control, he now co-leads Navigant Consulting’s Global Investigations and Anti-Money Laundering Practice in New York. His company serves financial institutions of all kinds by providing assistance with responding to Regulatory Actions in addition to more proactive services. This work includes AML/Sanction Program compliance projects such as including Look-backs, CDD remediations, Monitorships, Investigations, Risk Assessments, Compliance Gap Analyses, Model Validations, NYSDFS Part 504 work and AML/Sanctions Compliance technology enhancement, implementation and optimization. Navigant also provides investigators to clear FIU surge activity, outsourced FIU services, and embedded compliance officers.
In your opinion, how robust is the current anti money laundering (AML) regulation?
It is appropriately robust and evolving in a manner consistent with changes in banking, securities and payment systems.
Typically how do financial institutions manage their money laundering compliance obligations? How can they remain up-to-date and compliant?
Financial institutions face numerous compliance challenges from different areas, including AML and Sanctions. Considering the complexity of these regulations, the rigor of examination and competitive business landscape, these financial institutions typically do very well. We are, however, more frequently reminded of examinations that result in an action, whereas successful exams get no mention. Good risk assessments, independent reviews and Governance, in particular, accountability, oversight and training, go a long way towards keeping AML and Sanction programs up-to-date.
Tell us a bit about your work in the field.
I lead large teams that regularly perform historical transaction reviews (Lookbacks) and KYC/CDD/EDD file remediation work. I also help clients overcome AML and OFAC backlogs by deploying teams embedded at our clients’ work sites to that disposition alerts.
My expertise includes assisting clients with the selection, implementation, optimisation and validation of AML and OFAC compliance technology and enhancing AML transaction monitoring detection scenarios and sanctions filter interdiction logic.
My work is exciting. I am able to market our great services to client, deliver those services, lead teams of highly talented people and enjoy the satisfaction of jobs well done. Moreover, as someone who needs to constantly learn and evolve, the introduction of Artificial Intelligence, Machine Learning and Robotics Process Automation lets us provide more effective compliance and investigative solutions than ever before.
Contact details:
Email: salvatore.lascala@navigant.com
Phone: +1 212.554.2611
Website: https://www.navigant.com
