The Man in the Mirror: Employee Due Diligence

Michael Jackson man in mirrorFill in this blank: __________________ Due Diligence. If you are like most AML professionals, “Customer” was the first and only answer that came to mind. The importance of Customer Due Diligence has been drummed into the mind of AML practitioners and is a common training topic. However, the recent indictment of a former TD Bank employee on wire fraud relating to the Rothstein ponzi scheme demonstrates that financial services firms need to know their employees and be able to detect red flags in employee activity.

It’s important to regularly check in on your employees to ensure they are doing everything that is expected of them. These checks can be used to search for any warning signs of unacceptable behaviour. It might be useful to visit to get a better understanding of how best to carry out performance appraisals when you have concerns about an employee – the smoother you can make the process the less likely it is that you’ll end up in a sticky situation. Alternatively, you may find that an employee or particular team is struggling because they lack a particular skill or bit of training that will enable them to excel in their work. Should you find that this is the case, you will want to address this in the best way possible – you may wish to make use of the numerous advantages of microlearning in order to get everyone at the same level and give them the knowledge they need to be able to do their job as effectively as possible.

DSA president, Alison Jimenez, presented on Employee Due Diligence at this years ACAMS AML and Financial Crimes conference in Las Vegas. The focus of the presentation was taking a look inward at employee actions that may indicate suspicious activity. Key takeaways included:

  • Depository Institutions are required to file SARs when“directors, officers, employees, agents or other institution-affiliated parties having committed or aided in the commission of a criminal act, regardless of the amount involved in the violation.”a
  • SARs were filed on almost 20,000 institution affiliated individuals from July 2012 – December 2013 b
  • The most common type of Insider Suspicious Activity was embezzlement/defalcation c
  • #1 red flag for Employee fraud is “living beyond means”c
  • Proactive data monitoring of Employees results in the greatest decrease in amount lost to fraud d

The South Florida Business Journal reports TD Bank has accrued more than $500 million in legal costs due to the Rothstein ponzi case. Employee Due Diligence is an expensive lesson to learn.

a 12 CFR 208.62 (Board of Governors of Federal Reserve)
b FinCEN SAR Stats Issue 1
c SAR Activity Review, Issue 23, May 2013
d Report to the Nations on Occupation Fraud and Abuse, 2014 Global Study, ACFE