Compliance; Be Careful When You Acquire

December 19, 2013 by Allan Ramlall Leave a Comment

Thomas Curry, the U.S Comptroller of the Currency mentioned this November that it is necessary for banks to conduct an enhanced attention to anti-money laundering controls in planned acquisitions so as not to also acquire Bank Secrecy Act risks. One could take this statement to another level whereby even the Buyer-Bank should even re-evaluate its own BSA program to make sure that all is in order prior to planning an acquisition of another institution. Inevitably, the Regulators would look at the AML/CFT facets prior to granting approval status to any acquisition. A prime example of not heeding such advice was last April, the Federal Reserve citing Bank Secrecy Act concerns of M&T Bank Corporation resulted in the halting of the proposed $43.7 billing acquisition of Hudson City Bankcorp. And, just as recent as this week in the Wall Street Journal, it was reported that the M&T problem with the Hudson Bank acquisition has served as a warning to other banks about the regulatory risks of doing such transactions. Apparently, this particular M&T Bank situation has been cited as a reason why more consolidation has not occurred among midsize and regional banks. We can refer to regulatory attentions such as this October, the FDIC took actions against United Bank of Michigan in Grand Rapids making it necessary for the $469 million-asset bank to improve its compliance with the Bank Secrecy Act. In addition there was a consent order against Premier Community Bank in Marion, Wisconsin which required the $262 million-asset bank

to appoint a compliance committee, to have a compliance officer and to improve the

oversight of its internal compliance controls. In merger and acquisition situations, it is more common to dwell on the financial component as opposed to the AML/CFT part of the equation. But we are now learning that the Regulators are just as concerned with Compliance as with Finance. Since I am referring so much to the M&T Bank deal, it appears part of the banks problems relates to its internal controls and oversight of foreign correspondent accounts at its Wilmington Trust subsidiary that it acquired in 2011. This situation seems so familiar to what occurred with HSBC Banks inheritance of a regulatory nightmare of Grupo Financiero Bital in Mexico. And we all know of the consequences which occurred with HSBC Bank. Whether one is bank or not, when it comes to financial institutional acquisition, we all need to pay heed to BSA details. A lesson learned is that in planning an acquisition, one has to look internally to make sure that its own AML/CFT standards are close to perfect and concurrently to also apply the same criteria in evaluating the potential acquiree. Once one is satisfied with an objective evaluation then proceed for regulatory approval of the transaction. -Allan Ramlall airamlall@gmail.com