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“Extraordinary workloads” and “extraordinary steps” – What can we learn from these phrases? Unfortunately, not much

The most recent AML-related public censure comes in the form of a FINRA “AWC” or Letter of Acceptance, Waiver and Consent voluntarily submitted by Morgan Stanley to its self-regulatory organization, FINRA, on December 12, 2018. The AWC is a reasonably typical example of a public settlement (in the case of FINRA) or consent order or assessment of a money penalty (in the case of bank regulators and FinCEN) in that it uses colorful but vague adjectives and adverbs to describe the impugned activity – words such as willful, insufficient, appropriate, adequate, extraordinary (describing workloads) frequent, and sufficient – as well as to describe the actions taken after getting caught or self-reporting the impugned activity  – words such as extraordinary, substantial, and sufficient. We can guess or imagine what Morgan Stanley and FINRA mean by “extraordinary workloads” (bad) and “extraordinary steps” (good), but it would be much more instructive to all industry participants if the adjectives, adverbs, and phrases used in all public AML documents were more precise and instructive. I give a few examples below. But …

Perhaps the most interesting thing about this AWC is what is NOT written! There is nothing in it that suggests that Morgan Stanley did a review or look-back of the almost 500,000 wires for almost $100 billion over a 5 year period that didn’t make it into its AML transaction monitoring system … was there any undetected and thus unreported suspicious activity? We don’t know. But back to what WAS written in the AWC …

http://www.finra.org/sites/default/files/Morgan_Stanley_AWC_122618.pdf

There is quite a bit of detail on Morgan Stanley’s failure to feed at least four wire transfer and foreign currency transfer systems to its main transaction monitoring system, some for as long as 5+ years (January 2011 to at least April 2016):

  • from 2011 through 2016 two main wire systems failed to feed 140,000 wire transfers for $43 billion, including $3.2 billion to or from high risk countries;
  • from December 2014 through April 2016 an incoming wire system failed to feed 267,000 incoming wires for $30.4 billion, including $1.8 billion from high risk countries; and
  • from January 2014 through August 2015 an outgoing wire system failed to feed 91,000 outgoing wires for $25.5 billion, including $1.2 billion to high risk countries.

That’s almost 500,000 wires over a 5+ year period totaling almost $100 billion ($100,000,000,000), including $6,200,000,000 to or from high risk countries.

It would be instructive if the AWC included the total number and dollar amount of all Morgan Stanley wires during this period, and to/from which high risk countries they came from or went to.  Was 500,000 wires 10% of the total? 50%? 90%?  If $6.2 billion in wires to/from high risk countries went un-monitored, how much WAS monitored? And how much of that monitored activity was alerted on? Knowing the answers to these questions would be instructive. In addition, there is nothing about WHY these systems weren’t connected to the transaction monitoring system: that information would also be instructive for the industry.  What did FINRA and Morgan Stanley learn that could be used by the industry to prevent another $6.2 billion in wires to and from high risk countries?

In addition, the AWC notes that 24 AML analysts and contractors “had extraordinary workloads that likely contributed to their unreasonable reviews” of those wire transfers that did alert on the transaction monitoring system.

What is “extraordinary”? To answer that, FINRA needs to explain what it considers “ordinary”: how many Analysts should Morgan Stanley have had to handle the number of alerts produced? There is nothing in the AWC that provides something like “the AML analysts were required to clear 50 alerts per day yet received between 70 and 100 each day.

The AML team and senior management at Morgan Stanley deserve credit for taking “extraordinary steps” and devoting “substantial resources” and investing “substantial additional financial resources in the AML program”, and they “greatly increased” the AML staffing. But, like the vague words to describe the impugned behavior, these vague words to describe the remediation efforts are simply not helpful to anyone trying to learn from this case and make their own institution’s program better. Just what were those extraordinary steps? What resources were added? And they greatly increased the AML staffing … but from 24 to what?

To conclude, it would be extraordinarily helpful if FINRA, FinCEN, and others devoted substantial resources and greatly decreased their use of descriptive but vague adjectives and adverbs, and instead invested substantial additional resources in providing actionable, specific information.