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CFIUS in 2026 and Beyond: Why Foreign Investment Risk Must Become a Core Compliance Priority

For years, many corporate compliance professionals saw the Committee on Foreign Investment in the United States (CFIUS) as primarily a concern for mergers-and-acquisitions attorneys. When a foreign investor sought to acquire a U.S. business, the legal team evaluated potential national security concerns, determined whether to file, and navigated the regulatory review process. Once the transaction closed, the matter often moved off the compliance radar. That approach is increasingly difficult to defend.

The recently released 2025 CFIUS Annual Report to Congress shows that foreign investment oversight has evolved into a sophisticated regulatory regime that includes transaction screening, national security investigations, mitigation agreements, ongoing compliance monitoring, and enforcement. In an analysis by Thaddeus McBride and Faith Dibble, CFIUS Annual Report Reveals Enforcement Trends highlights several developments that should command the attention of Chief Compliance Officers (CCOs), General Counsel, and corporate boards.

The key takeaway is that CFIUS compliance must become part of an organization’s broader enterprise risk management and internal controls framework. For compliance professionals, this creates both new responsibilities and opportunities to demonstrate the strategic value of an effective compliance program.

CFIUS Activity Remains High, and Scrutiny Is Intensifying

The numbers tell an important story. During 2025, CFIUS reviewed or assessed 347 covered transactions through written notices and declarations. Overall filing volume increased about 7 percent from 2024, driven primarily by a 21 percent increase in declarations.

Written notices remained relatively stable, declining approximately 1 percent. At first glance, the growing popularity of declarations might suggest that companies are finding more efficient ways to navigate the CFIUS process. However, the underlying statistics tell a more complicated story.

In 2024, approximately 78 percent of declarations resulted in CFIUS concluding action. That figure declined to approximately 66 percent in 2025. Meanwhile, the percentage of declarations resulting in requests for full written notices increased from 15 percent to 26 percent. This is significant. A declaration provides an abbreviated review process, generally involving a 30-day assessment. A full written notice involves an initial 45-day review, potentially followed by an additional 45-day investigation. For companies pursuing cross-border acquisitions, these timelines create substantial transaction uncertainty.

The compliance lesson: CFIUS risk assessment must occur during the earliest stages of transaction planning, not after the parties have negotiated their principal commercial terms.

CCOs should work closely with legal, corporate development, finance, and business leadership to ensure national security considerations are integrated into acquisition due diligence. The objective is not simply to determine whether a filing is required. It is to understand how regulatory risk may affect transaction structure, timing, valuation, and post-acquisition operations.

National Security Risk Extends Beyond Traditional Defense Industries

Another important finding concerns the industries attracting CFIUS attention. In 2025, finance, information, and services accounted for about 49.5 percent of non-real estate notices, while manufacturing accounted for another 39.5 percent. Together, these sectors accounted for nearly 90 percent of notices.

This demonstrates that CFIUS scrutiny extends well beyond traditional defense contractors and aerospace manufacturers. Companies in financial services, technology, telecommunications, data analytics, advanced manufacturing, and other commercial industries may hold assets that raise national security concerns.

Those assets may include sensitive personal information, proprietary technology, critical infrastructure, government contracts, or supply chain capabilities. Consider a foreign investor acquiring a U.S. technology company whose principal business involves collecting and analyzing consumer data.

The transaction may appear commercially straightforward. However, access to sensitive personal information, cybersecurity systems, or technology infrastructure could introduce significant national security considerations.

For CCOs, this means traditional anti-corruption and sanctions diligence is no longer sufficient when evaluating cross-border investments. A comprehensive assessment should examine beneficial ownership, sensitive technology, cybersecurity, data access, export controls, government relationships, and supply chain dependencies.

This is where compliance can provide real business value. By identifying these risks early, compliance professionals can help leadership make informed investment decisions before the organization commits substantial financial and operational resources.

Mitigation Agreements Are Continuing Compliance Obligations

Perhaps the most consequential findings for compliance professionals concern mitigation and enforcement. During 2025, CFIUS imposed mitigation measures and conditions in approximately 12 percent of transactions. At year-end, the committee monitored 234 mitigation agreements and conditions and conducted 40 compliance site visits.

These figures show that CFIUS oversight often continues long after a transaction closes. A mitigation agreement is not simply a legal document negotiated to obtain regulatory approval.

It establishes operational obligations that may require continuing monitoring, reporting, restrictions on access to information or technology, and other safeguards. Failure to implement those obligations effectively can create significant compliance and enforcement exposure.

This should sound familiar to anyone who has followed the Department of Justice’s approach to corporate compliance. Although CFIUS operates under a distinct legal framework, the underlying compliance principles mirror those in the DOJ’s Evaluation of Corporate Compliance Programs.

The compliance lesson: Every CFIUS mitigation agreement should be translated into an operational compliance framework with clearly assigned responsibilities. That framework should include documented procedures, employee training, testing, escalation protocols, and periodic management reporting. Internal audit should evaluate whether the organization is meeting its obligations.

The board or an appropriate board committee should receive meaningful information about significant mitigation requirements and compliance performance. The objective is to show not merely that the company agreed to certain restrictions, but that those restrictions work in practice.

Non-Notified Transactions Are Becoming an Enforcement Priority

During 2025, the committee investigated 90 potential non-notified transactions, opened 62 formal inquiries, and requested filings in nine cases. Two additional transactions were voluntarily submitted before CFIUS issued formal filing requests. These statistics show that CFIUS does not rely exclusively on companies to identify and report potentially covered transactions.

The committee obtains information through government agencies, congressional notifications, media reports, commercial databases, public tips, classified information, and voluntary disclosures. This has profound implications for corporate compliance.

Historically, some organizations may have viewed not filing as the conclusion of their CFIUS analysis. That assumption is increasingly risky. CFIUS can examine completed transactions and require parties to address national security concerns after closing. In certain circumstances, those concerns may result in mitigation obligations or divestiture.

The 2025 report identified seven transactions that parties abandoned after CFIUS could not identify acceptable mitigation or the parties declined proposed mitigation measures. Two matters also resulted in presidential orders prohibiting acquisitions or requiring divestment. For boards and senior executives, the implications are substantial.

The compliance lesson: Organizations should establish a documented process to evaluate CFIUS jurisdiction and filing obligations for relevant acquisitions and investments. Where management determines that a voluntary filing is unnecessary, the decision should be supported by a documented risk assessment. This documentation should explain the transaction’s ownership structure, relevant national security considerations, and rationale for the filing decision. A defensible decision-making process is essential to effective compliance governance.

Voluntary Self-Disclosure Must Be Part of the Compliance Conversation

The annual report also highlights CFIUS’s continued attention to voluntary self-disclosures involving potential mandatory-filing failures and violations of mitigation obligations. Importantly, the report notes that many instances of noncompliance do not result in penalties. This should not be interpreted as regulatory indifference. Rather, it reinforces the importance of identifying potential violations, investigating them promptly, and considering appropriate disclosure and remediation.

For compliance professionals familiar with the DOJ’s Corporate Enforcement and Voluntary Self-Disclosure Policy, the broader principle is recognizable. Regulators place significant importance on how organizations respond when problems are discovered. However, CFIUS disclosure and enforcement procedures are distinct from DOJ criminal enforcement policies. Companies should not assume that DOJ disclosure incentives automatically apply to CFIUS matters.

The appropriate response starts with a credible internal process to identify and escalate concerns. Employees responsible for implementing mitigation agreements must understand their obligations and know how to report potential violations. Compliance teams should establish procedures to investigate concerns, preserve relevant evidence, determine root causes, and evaluate corrective action. Where a potential violation is identified, legal and compliance leadership should assess whether voluntary disclosure is appropriate under the applicable CFIUS framework.

What CCOs Should Do Now

The 2025 annual report provides a practical roadmap for strengthening foreign investment compliance.

  1. Incorporate CFIUS considerations into the enterprise risk assessment. Identify business activities, investment structures, and assets that may create national security exposure.
  2. Integrate CFIUS screening into transaction approval procedures. Require appropriate legal and compliance review before significant cross-border investments advance.
  3. Strengthen third-party and beneficial ownership diligence. Understanding who ultimately owns or controls an investor can be essential to identifying regulatory concerns.
  4. Establish ongoing monitoring for mitigation agreements. Assign control owners, set performance expectations, test periodically, and document remediation.
  5. Develop escalation and investigation procedures for potential violations. Ensure employees understand how to report concerns and management understands when disclosure decisions must be considered.
  6. Provide the board with meaningful reporting on material CFIUS risks, significant mitigation obligations, and emerging regulatory developments.

Conclusion: CFIUS Compliance Is a Lifecycle Responsibility

The 2025 CFIUS Annual Report reveals an enforcement environment characterized by sustained transaction activity, increased scrutiny of abbreviated filings, continuing mitigation oversight, and growing attention to transactions that were never submitted for review.

The fundamental lesson is straightforward. CFIUS risk begins before a transaction is signed and may continue long after the transaction closes. For CCOs, the challenge is to ensure that foreign investment compliance is integrated into governance, risk management, internal controls, and organizational accountability.

The companies best positioned to manage this environment will be those that identify national security risks early, make informed filing decisions, operationalize mitigation commitments, and continuously evaluate compliance effectiveness. CFIUS should no longer be viewed solely as a transaction approval process.

It is an ongoing compliance obligation that requires the same discipline, oversight, and commitment to continuous improvement expected of any effective corporate compliance program.

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BOA Part 4: 20 Lessons Every Corporate Compliance Professional Should Learn from BOA

A manufacturer, technology company, retailer, or energy business doesn’t need to operate a bank to recognize the management problems this series examines. A commercially important relationship presents unresolved concerns. A monitoring tool produces reassuring statistics but does not provide adequate coverage. A vendor fails to deliver a critical update. Employees identify weaknesses, but corrective action remains incomplete.

Bank of America’s documents provide specific examples of these issues. FinCEN emphasizes management decisions, monitoring deficiencies, and customer due diligence failures. OFAC adds findings involving vendors, technology changes, operational mistakes, and remediation.

A non-banking compliance professional’s task is to translate those findings, not copy the bank’s obligations into a different industry. Bank-specific suspicious activity reporting and correspondent-account requirements should not be treated as universal corporate obligations. OFAC’s compliance framework, by contrast, expressly addresses organizations beyond financial institutions, including entities subject to U.S. jurisdiction and certain foreign entities with relevant U.S. connections. Applicability still depends on the organization’s activities and circumstances.

In this concluding Part 4, I offer 20 lessons learned as practical applications of the record from the FinCEN Consent Order and OFAC’s Enforcement Release.

Governance, Culture, and Management Accountability

FinCEN found that management focused on resource implications and revenue while identified risks persisted without commensurate controls. That is the factual foundation for the first four lessons.

1. Revenue is not a risk mitigation measure.

When a sales team argues that a distributor is indispensable, acknowledge the commercial importance and return to the unresolved risk. Require the business to identify the controls supporting continued engagement. The decision should explain why those controls are adequate, not merely why termination would be expensive. Commercial value belongs in the discussion, but it should not substitute for evidence of risk mitigation.

2. Escalation must produce a decision and follow-through.

Assign a decision-maker, a response deadline, and an accountable owner for every material compliance escalation. Record the reasoning behind the decision and the actions that follow. Where management retains a relationship subject to conditions, specify what happens when those conditions are not met. A recommendation should not disappear into repeated meetings without a documented disposition.

3. Resources should follow the risk.

Prepare resource requests around the work needed to address identified exposure: investigative volume, overdue reviews, data gaps, geographic expansion, and testing requirements. Where funding is declined, document the resulting limitations and proposed alternatives. Do not make a control appear more effective by excluding work merely because the organization lacks the capacity to perform it.

4. Board reporting should show unresolved exposure.

Report significant exceptions, recurring deficiencies, overdue corrective actions, and failed effectiveness tests alongside completed activities. Identify the executive responsible for the response and the decisions requiring board attention. Directors do not need every case file. They need a clear picture of material risks that remain uncontrolled and the evidence supporting management’s assessment.

Due Diligence and Understanding Business Relationships

FinCEN describes customer profiles that did not adequately incorporate third-party payments, geographic exposure, and information developed during the relationship. It also found deficient due diligence involving the bank’s own foreign branches and affiliates. FINCEN consent order 

5. Due diligence is a continuing process.

Set triggers to reassess when ownership, products, payment practices, geography, or transaction volumes change. A distributor’s original approval does not answer questions raised by materially different activity three years later. Updating a risk rating should also lead to an assessment of whether monitoring, contractual protections, payment controls, or other safeguards need to change.

6. Understand who is paying, for whom, and why.

For a non-banking business, relevant questions may arise when an unrelated entity pays a customer invoice, commissions are redirected, or refunds are requested to a different account. These circumstances do not automatically prove misconduct. They are reasons to obtain a supportable business explanation and apply appropriate controls before proceeding.

7. Familiarity and affiliation are not substitutes for assessment.

Apply risk-based review to longstanding partners, subsidiaries, and affiliated entities as well as unfamiliar third parties. The question is not simply whether the organization knows the entity. It is whether the organization understands its current activity, relevant counterparties, and exposure. Corporate affiliation may affect the information available, but it should not end the inquiry.

8. Evaluate connected relationships.

When an investigation identifies a problematic intermediary, assess whether the same person, beneficial owner, address, payment account, or commercial arrangement appears elsewhere. FinCEN describes the bank failing to reassess continuing customers after exiting a connected customer. The corporate application is to avoid treating each third-party file as an isolated record when the relevant risk involves a network of relationships. FINCEN consent order

Technology, Data, and Control Design

The Event Processor findings address unsupported design choices, inadequate responses to testing, poorly governed suppression rules, and incomplete monitoring coverage. These findings form the foundation for the next four applications. FINCEN consent order

9. Require evidence that automated decisions are supportable.

For each material automated compliance control, document its purpose, inputs, decision rules, limitations, and owner. Determine who can change it and who independently evaluates its performance. Ask the same questions whether the tool uses fixed rules, statistical models, or AI. The technology’s sophistication should not determine the rigor of its governance.

10. Measure what the system misses.

Test selected activity that falls below thresholds, bypasses automated review, or comes from products and business units with limited coverage. Examine delays and missed issues. A lower alert count may represent improvement, deterioration, or a change in the population being monitored. Do not treat reduced workload as proof of reduced risk.

11. Make data governance part of compliance governance.

Identify the information each control needs and trace it from its source through the control and into any resulting investigation. Assign responsibility for missing, inconsistent, or inaccessible data. FinCEN’s required review explicitly addresses data accuracy, completeness, responsibilities, information flows, and error detection. The corporate application is to treat those matters as control dependencies, not solely information technology concerns. FINCEN consent order

12. Put controls around exceptions.

Whitelists, overrides, automatic dismissals, and other exclusions should have a documented rationale, approval authority, review date, and testing requirements. Ensure that an exemption granted for one purpose does not disable an unrelated control. Revisit exceptions when the underlying facts change. An exception should remain a controlled decision, not become an undocumented permanent feature.

Vendors, Operational Execution, and Independent Challenge

OFAC’s compliance considerations emphasize organizational responsibility despite third-party reliance, controlled technology changes, and training supported by testing and accessible guidance. OFAC

13. Outsourcing does not transfer performance responsibility.

For a critical screening, monitoring, or due diligence provider, verify that the service actually operates within the company’s process. Test updates, escalation procedures, outages, and known limitations. A contract and a vendor assurance are useful starting points. They don’t prove required information reaches the right system or that employees act on it appropriately.

14. Treat technology changes as compliance events.

Before a migration, assess data transfer, control continuity, expected alert volume, staffing, and fallback procedures. After launch, test the real process rather than rely entirely on preproduction results. Define who can pause implementation or impose temporary safeguards if performance is inadequate. Completing the migration should not be the only measure of success.

15. Test whether employees can perform the required task.

Use realistic scenarios for sales, procurement, finance, logistics, and other relevant functions. Ask employees to demonstrate when they would stop a transaction, seek advice, or escalate an exception. Provide usable instructions and accessible expertise. Training completion is an administrative measure. Correct execution is the outcome the organization needs to establish.

16. Protect independent challenges.

FinCEN describes repeating an unfavorable test, with the second result supporting the existing threshold. For other organizations, the application is to preserve original findings, document methodological changes, and subject material disagreements to independent review. A test may legitimately need correction. The process should explain why the correction is valid, not just produce a more comfortable answer. FINCEN consent order

Detection, Investigations, and Sustainable Remediation

17. Use external warnings to assess internal detection.

FinCEN distinguished useful cooperation and information sharing from excessive dependence on external and manual sources to identify relevant risks. Apply that distinction carefully. A whistleblower report does not, by itself, prove that a program failed. The question is whether controls designed to detect the issue should have identified it earlier and what the external information reveals about their limitations. FINCEN consent order

18. Investigate the underlying problem, not only the first incident.

When a control fails, determine whether the same weakness affects other transactions, employees, systems, business units, or jurisdictions. Document the rationale for the investigation’s scope and revisit it as evidence develops. OFAC’s criticism of the bank’s initially narrow lookback illustrates why resolving the first identified transaction may leave the broader problem undiscovered. OFAC

19. Require immediate protection and proof of lasting effectiveness.

Use appropriate interim safeguards while developing longer-term remediation. Then distinguish completion of the change from verification of its effectiveness. FinCEN’s undertakings separately address interim controls and subsequent testing of enhancements. For a corporate program, issue closure should identify the evidence reviewed, the remaining limitations, and who independently validated the result. FINCEN consent order

20. Organize disclosure and cooperation before the response becomes fragmented.

Establish decision rights, preserve evidence, develop the facts, and assess disclosure with counsel under the applicable regime. Track requests and verify that responses are complete and consistent. OFAC’s treatment also demonstrates the importance of precision: voluntary disclosure affected the base calculation for some violations, but the settlement received no additional reduction from that base. Different forms of credit should not be treated as interchangeable. OFAC

Turn the Lessons into an Action Plan

This case study’s value is not the number of lessons a compliance team can recite. It is whether the organization uses them to examine decisions and controls that matter to its own business. Start with three lessons that present the greatest exposure in your organization.

For each, identify the responsible executive, the control being relied upon, the latest evidence that it works, and the corrective action needed where that evidence is missing. Record what must happen immediately and what can reasonably be addressed through a longer-term plan.

Then take the results to the appropriate management or board committee. Do not report only that the review was completed. Report what the organization learned, what remains unresolved, and how effectiveness will be verified. The four-part series began by distinguishing between identifying a risk and addressing it. It ends by applying the same discipline to your own program.

The final board and CCO question: Where has our organization identified a material compliance risk, accepted a plan to address it, and failed to verify that the plan actually worked? This is the same basic question that concludes the last major section of the 2024 Evaluation of Corporate Compliance Program: Does the corporation’s compliance program work in practice?

Conclusion

Part 4 translates the Bank of America enforcement record into 20 practical lessons for compliance professionals outside banking, without treating bank-specific obligations as universal corporate requirements. The article organizes those lessons around governance and accountability, continuing due diligence, technology and data, operational execution, and sustainable remediation. Its central message is that commercial importance cannot substitute for risk mitigation; an escalation is not resolved merely because it has been discussed. Automation does not establish that a control works.

For CCOs, the practical response is to connect material concerns to accountable decisions, test what systems miss, verify vendor performance, and confirm that employees can execute required procedures. Remediation should include interim protection and independent evidence that corrective measures are effective. The concluding assignment turns these lessons into action: select three areas of greatest exposure, identify responsible executives, examine the evidence supporting existing controls, and address the gaps. The objective is not to adopt another company’s compliance program, but to use its documented failures to test and improve your own.

What it all Means for Compliance

The Bank of America enforcement actions illustrate the difference between maintaining compliance processes and achieving compliance effectiveness. Part 1 examined management’s response to known concerns, including decisions that prioritized revenue and resources while risks persisted without commensurate controls. Part 2 examined how unsupported design choices, monitoring gaps, and inadequate responses to testing undermined automated detection. Part 3 connected sanctions failures to broader questions of vendor oversight, operational execution, investigation scope, and durable remediation. Part 4 translated those findings into an action agenda for non-banking compliance professionals.

All of this makes the case for treating compliance as a business discipline grounded in governance, reliable information, accountable decisions, and verified results. CCOs should be able to demonstrate what happens after a concern is raised, while boards should ask what remains unresolved and whether management’s response has reduced the exposure. The ultimate test is not whether an organization can describe its compliance program. It is whether it can demonstrate that its controls work, management acts on adverse information, and corrective action addresses the underlying risk.

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BOA Part 3: The Failure to Connect the Dots: Sanctions, AML, and Effective Remediation

A payment-routing problem, a stale watchlist, an incorrectly prioritized alert, and an employee processing error may initially seem like separate operational incidents. OFAC’s Enforcement Release asks compliance leaders to examine the broader pattern. Its compliance considerations emphasize management oversight that identifies potentially systemic problems, implements durable solutions, and prevents errors from recurring across the enterprise.

Today, in Part 3, we focus on that connection. Fixing the first visible error is necessary. Establishing whether the same weakness exists elsewhere is the next responsibility.

A Separate Action with Familiar Governance Problems

According to the Enforcement Release, Bank of America agreed to pay $11,662,930 to resolve potential civil liability for 475 apparent violations involving approximately $14.8 million in transactions. The conduct involved sanctions programs targeting Russia, Belarus, Iran, Burma, Somalia, narcotics, and global terrorism. OFAC classified the matter as non-egregious but largely not voluntarily self-disclosed. These are separate findings from FinCEN’s anti-money laundering case. Do not treat them as findings about identical transactions merely because they reveal related governance concerns. Those concerns include control design, alert handling, staffing, technical changes, investigation scope, and the response to known weaknesses.

Payment Routing: A Control Must Work Across the Process

Bank of America used a third-party routing directory to help determine intermediary banks for certain cross-border payments. Some routing was automated; some could be entered manually. Once payment details were generated, the bank screened them for sanctions compliance.

In March 2022, the bank became aware that the directory included blocked banks and that some payments were still being processed to or through them. OFAC identified several causes: screening updates had not yet reflected new designations, analysts incorrectly dismissed alerts, or suppression rules automatically released payments based on earlier false-positive decisions.

OFAC ultimately identified 403 transactions totaling approximately $14.34 million routed through 35 blocked banks between February 2022 and March 2025. The bank implemented an automated directory solution in January 2023, but the release describes broader payment-processing failures beyond that implementation.

The compliance lesson is to test the complete process. A current directory does not establish that manual entry works correctly. A screening alert does not establish that the alert is properly resolved. A prior false-positive decision does not establish that the same disposition remains appropriate after a sanctions designation.

Alert Prioritization: Strong Information Must Produce an Appropriate Response

OFAC describes a design flaw that assigned low or medium priority to customers whose names and dates of birth both exactly matched those of blocked persons.

Because those alerts were not classified as high priority, review was delayed. Three designated individuals conducted 31 transactions using bank or credit card accounts. The bank fully implemented the relevant correction in February 2024, six months after initially identifying the issue. This is a control-design issue with an operational consequence.

The existence of a queue does not establish effective prioritization. Compliance leaders should be able to explain which information triggers immediate attention, which activity may continue while an alert awaits review, and what interim protection applies when the prioritization logic is known to be deficient.

Watchlist Updates: Vendor Performance and Internal Processing Both Matter

Between May 24 and June 28, 2023, a third-party vendor error prevented the watchlist file Bank of America used from reflecting changes to OFAC’s sanctions list. The bank did not identify the error until July, approximately a month after another U.S. bank blocked one of the affected payments downstream.

A separate failure in February 2025 involved technical problems in the bank’s own systems. The bank failed to implement a vendor update reflecting the previous day’s designations and processed transactions for a designated ship management company. The bank fully activated the relevant updates several days later; it then conducted a lookback and self-disclosed those transactions.

The two events should not be collapsed into a single vendor failure. One originated with the vendor. The other involved the bank’s processing of an update. Together, they illustrate why oversight should verify the entire update process: issuance, receipt, loading, activation, and operation. A delivery confirmation is not proof that screening uses the new information.

Employee Errors and Technology Changes Need a Control Response

The Enforcement Release also describes a business account that remained unrestricted after an analyst dismissed an alert involving its blocked beneficial owner. A subsequent rescreening during a platform migration generated another alert, but the bank did not review it promptly. OFAC attributed the delay to the volume of migration-generated alerts and inadequate preparation for that workload.

In another incident, personnel moved $189,869 from restricted business accounts into a new unrestricted account after misunderstanding how to handle accounts with a blocked authorized signer. Sanctions personnel identified the error and blocked the new accounts before the customer conducted further transactions involving the funds.

The second intervention mattered. It prevented further activity. It did not eliminate the need to examine why the transfer had been authorized. Calling an event human error should begin the root-cause inquiry, not end it. Was the instruction clear? Did the employee have access to appropriate guidance? Were approval rights properly defined? Should another control have prevented the action?

What the Penalty Says About Disclosure and Cooperation

OFAC determined that 413 apparent violations were not voluntarily self-disclosed and 62 were. Its base penalty calculation already reflected that distinction: the applicable scheduled amounts for the former and one-half of transaction value for the latter. The settlement equaled the resulting base penalty. Consequently, saying that the bank received no recognition whatsoever for voluntary disclosure would be inaccurate.

The more precise lesson is that OFAC granted no additional reduction from the base penalty. The release expressly states that OFAC did not mitigate the penalty for remedial measures or cooperation. OFAC also identified a tolling agreement as a mitigating factor but concluded that the circumstances did not justify a net reduction.

OFAC described piecemeal or incomplete submissions and delayed responses that slowed its investigation. It also criticized the bank’s initially narrow lookback into blocked-bank payments, with the full scope identified only after further OFAC direction. For compliance leaders, the lesson is to organize the response early. Coordinate investigation scope, document preservation, factual development, disclosure decisions, remediation, and regulatory responses rather than handling them as disconnected tasks.

FinCEN’s Undertakings Show What Verification Requires

The FinCEN Consent Order requires independent work to address historical suspicious activity, the effectiveness of transaction monitoring, customer and foreign correspondent due diligence, and data governance. Its lookback begins in January 2022 and extends through completion of relevant monitoring remediation, subject to the Consent Order’s scope provisions.

Two aspects are particularly instructive. First, the Consent Order addresses interim controls while remediation remains underway. A future system improvement is not treated as an answer to present exposure. Recommended interim measures may include manual processes, periodic reviews, and product-focused analyses. Second, the end-state review includes subsequent testing to validate whether enhancements meaningfully mitigate the relevant risks. Implementation and effectiveness are separate questions.

That distinction should shape remediation reporting. The board needs to know both whether the change was completed and whether testing demonstrates that it works.

Three Key Takeaways

First, investigate recurring themes across incidents. Similar errors may reveal shared weaknesses in data, approvals, staffing, training, or change management.

Second, treat disclosure and cooperation as disciplined processes. Determine the scope, preserve the record, develop the facts, and respond completely and promptly.

Third, distinguish implementation from effectiveness. Maintain interim safeguards and require independent evidence before declaring a material issue resolved.

The board question: Are we receiving evidence that remediation has reduced the risk, or only reports that remediation activities have been completed?

Summary

In Part 3, we examined how BOA’s sanctions failures exposed weaknesses across payment routing, alert prioritization, watchlist updates, and employee execution. The central lesson is that seemingly separate incidents should prompt an examination of shared weaknesses in oversight, resources, and operational processes, rather than a series of isolated fixes. We also considered vendor accountability, controlled technology changes, appropriately scoped investigations, and coordinated disclosure and cooperation.

FinCEN’s requirements for interim safeguards and subsequent effectiveness testing illustrate why implementing corrective measures and proving that they work are separate responsibilities. For CCOs, this means identifying root causes, preventing ongoing exposure, and independently validating the response. For boards, it means demanding evidence of reduced risk rather than accepting reports of completed activities. The measure of remediation is whether the underlying control weakness has been effectively addressed.

Join Us Tomorrow

Tomorrow in Part 4, we shift from Bank of America’s enforcement record to the decisions compliance professionals outside banking face. We translate BOA’s documented failures into 20 practical lessons covering governance, ongoing due diligence, technology and data, vendor oversight, employee execution, investigations, and remediation. The objective is not to apply bank-specific obligations to every company, but to examine how comparable weaknesses could arise in customer relationships, distributor networks, procurement processes, payment controls, and automated compliance systems.

Each lesson links a finding to a practical action, giving CCOs a framework to review their own programs. The series concludes with an assignment: select three areas of greatest exposure, identify accountable owners, examine the evidence that existing controls work, and address what remains unresolved. The final question is whether your organization has accepted a plan to address a material risk without verifying that it worked.

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BOA Part 2: The $5 Billion Blind Spot About Compliance Technology

An automated compliance system can operate exactly as configured and still fail to perform the function the organization needs.

That distinction is central to FinCEN’s findings concerning Bank of America’s proprietary transaction monitoring system, Event Processor. The FinCEN Consent Order attributes missed and delayed reporting of more than $5 billion in suspicious activity to deficiencies in internal controls and other parts of the bank’s anti-money laundering program. That figure reflects suspicious activity that was not reported on time, not a determination that every dollar represented criminal proceeds.

In Part 1, we examined management decisions about known risks. This installment examines how those decisions were embedded in technology, testing, and investigative processes. In Part 2, we review the natural follow-up to that statement: the lesson is not that automation is inherently unreliable. Automating a decision does not remove the obligation to establish that the decision is supportable.

Inside Event Processor

Bank of America developed Event Processor to manage transaction monitoring alerts. The bank’s records describe an interconnected model system intended to support identifying, investigating, and reporting suspicious activity. Its development also addressed a practical problem: there were not enough investigators to review all the alerts being generated.

The diagram on page 10 of the Consent Order illustrates the basic process. Individual alerts received weighted risk scores and were generally consolidated into customer-level Event Groups. Unless an automatic promotion applied, the group ordinarily did not become an investigative case until its combined score reached 20 points. Stakeholders initially set that threshold, and it remained in place until December 2023.

The timing rules were equally important. An Event Group generally needed to reach the threshold within 13 months of its oldest active alert. Older alerts could remain in the group but no longer contribute to its score. Consequently, retirement of an alert did not establish that the underlying concern had been investigated or resolved. For compliance leaders, the distinction is consequential. A system that generates an alert does not necessarily ensure meaningful review.

The Testing Challenged the Design

The Consent Order describes repeated evidence that the system’s risk weights did not adequately reflect the risks being identified. One internal report found that an ATM large-cash-deposit risk factor carried only one point in Event Processor even though the bank’s testing associated it with a SAR yield of 56.75%. FinCEN also notes that SAR yield can be useful but is not the only metric for evaluating a control. The issue was the bank’s failure to respond appropriately to evidence that its design was not addressing its risks.

The chart on page 21 makes the threshold problem particularly clear. In tested samples, Event Groups scoring 19 points, just below the investigative threshold, had SAR yields of 45.49% in the first quarter of 2022 and 45.03% in the second quarter. Earlier testing of groups scoring 20 to 24 points, which qualified for investigation, had produced yields of approximately 34%. FINCEN consent order

These results did not establish the precise performance of every unreviewed transaction. However, they challenged the justification for leaving the threshold unchanged. Management should have asked, “What does this evidence tell us about the activity we are not investigating?”

When Efficiency Becomes the Wrong Objective

FinCEN found that the bank’s testing often focused on whether yields above and below the threshold differed statistically, without adequately considering the implications of missed suspicious activity. The bank also lacked an objective benchmark to assess whether the threshold was appropriate.

In another example, a calibration model reduced the number of cases requiring investigation by more than 8,200. An accompanying report described the associated loss of SARs as permissible without explaining how that conclusion had been reached.

This distinction matters for any automated compliance process. Reducing unnecessary reviews can legitimately improve a process. Reducing reviews is not, by itself, evidence of improvement. Consider an expense-monitoring tool. Eliminating repetitive, demonstrably irrelevant alerts may improve performance. Raising thresholds until the review team can handle the remaining volume does not establish that the excluded transactions present acceptable risk.

That is an application of the case, not a finding about an expense system at Bank of America. The transferable principle is that the performance objective must remain tied to the compliance purpose.

Exceptions Can Defeat the Primary Control

The Event Processor also used rules that rescored certain risk factors to zero. The Consent Order describes those rules as developed through an ad hoc and subjective process without adequate testing. When the bank discontinued the logic in December 2023, approximately 150,000 active Event Groups had triggered one or more aspects of it.

One particularly useful example involved customers exempted from certain currency transaction reporting requirements. Event Processor used that status to suppress some alerts, even though the applicable exemption did not remove the obligation to report suspicious activity. The broader control lesson is to examine the legal and factual basis for every exception.

An exception for one purpose should not silently become an exemption from a different control. A previously approved customer should not automatically become exempt from future review. A false-positive determination based on yesterday’s information should not permanently determine tomorrow’s result.

Data Gaps Limit What Technology Can Detect

FinCEN found that the bank’s systems did not adequately distinguish among types of negotiable instruments, such as checks and money orders, which limited targeted monitoring. The Consent Order also describes insufficient monitoring and data quality issues involving credit card activity. The lesson for compliance technology governance begins before model selection.

What information does the control need? Is that information captured consistently? Does it reach the monitoring system? Can investigators retrieve and use it? Who is responsible when a required field is incomplete or a relevant product lacks coverage? A sophisticated analytical tool cannot compensate for an unidentified gap in the information supplied to it.

Recalibration Revealed the Scale of the Problem

Following regulatory engagement, Bank of America lowered the investigative threshold in December 2023 to 10 or 12 points, depending on the Event Group. A limited lookback identified nearly 8,900 SARs involving approximately $4 billion in activity that the bank had failed to identify and report under the prior parameters.

The bank estimated that the revised thresholds would double ongoing monthly investigative volume and require about 750 additional personnel, plus another 800 consultants for the one-time lookback. These were the bank’s staffing estimates, not evidence that every position had already been filled. For a CCO, those numbers make the resource question concrete. Technology configuration and staffing cannot be governed as unrelated decisions when one determines the other’s workload.

The Application to AI Governance

The Consent Order describes Event Processor as a proprietary interconnected model system. It does not establish that it was a generative AI system. Nevertheless, its governance failures provide useful comparison points for organizations deploying AI in compliance. FINCEN consent order

NIST’s AI Risk Management Framework organizes risk management around Govern, Map, Measure, and Manage. Applied here as an analytical framework, those functions suggest a practical sequence: assign accountable ownership, define the intended use and relevant risks, test actual performance, and act when the evidence identifies deficiencies.

ISO/IEC 42001 provides a complementary management-system approach for establishing, maintaining, and continually improving AI governance. Neither framework is presented here as a standard that FinCEN found Bank of America had violated. The objective is not to prohibit innovation. It is to ensure that innovation remains explainable, testable, and subject to effective challenge.

Three Key Takeaways

First, validate the decision rules, not merely system availability. Establish why thresholds, weights, prioritization rules, and exceptions address the intended risk.

Second, test what the control misses. Include below-threshold activity, incomplete product coverage, data gaps, and delayed escalation.

Third, connect technology governance to resources and remediation. A finding that requires additional review must lead to a supportable operational response.

The CCO question: Can you demonstrate that your compliance technology addresses the intended risk, or only that it operates according to its configuration?

In Part 2, we examined how BOA’s Event Processor transaction monitoring system failed to translate automated alerts into effective detection and investigation. FinCEN identified unsupported design choices, inadequately calibrated risk weights, poorly governed suppression rules, and monitoring gaps that persisted despite testing that challenged the system’s effectiveness.

After the bank lowered its investigative thresholds, a limited lookback identified nearly $4 billion in suspicious activity that it had failed to identify and report under the previous parameters. The central lesson for CCOs is that reducing alert volumes or investigative workloads does not, by itself, demonstrate improved compliance. Effective technology governance requires reliable data, supportable decision rules, independent testing, attention to missed activity, and resources sufficient to address the findings. These principles also provide practical guidance for AI oversight. An automated control is measured by whether it addresses the intended risk, not simply whether it operates as configured.

Join us Tomorrow

Tomorrow, Part 3 broadens the analysis from transaction monitoring to sanctions compliance, examining OFAC’s findings on blocked-bank payment routing, improperly prioritized alerts, delayed watchlist updates, and mishandled accounts associated with blocked persons. These incidents raise a broader management question: when several controls fail in different ways, does the organization investigate each error separately, or does it examine whether they reveal shared weaknesses in oversight, resources, and operational execution?

We will explore the importance of vendor oversight, controlled technology changes, appropriately scoped investigations, and coordinated disclosure and cooperation. We will also examine the difference between completing a corrective action and proving it works, including the role of interim safeguards and independent validation. Boards and compliance leaders must ask whether management has corrected individual incidents or verified that the underlying controls work across the enterprise.

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FCPA Compliance Report

FCPA Compliance Report: Mike Huneke and Brent Carlson with US Attorney David Metcalf

In this episode, Tom Fox cross-posts an episode of Red Flag Rising featuring U.S. Attorney for the Eastern District of Pennsylvania David Metcalf, joined by co-hosts Mike Huneke and Brent Carlson.

David Metcalf, the U.S. Attorney for the Eastern District of Pennsylvania, brings a practical, business-aware perspective on fraud enforcement and corporate compliance, shaped by experience both in government and as in-house counsel. He notes that white-collar enforcement in his district centers heavily on healthcare fraud but also extends to cybercrime, narcotics trafficking, export controls, and other complex investigations. Metcalf strongly encourages companies to consider self-disclosure in their self-interest, warning that the DOJ will be especially aggressive toward those that do not come forward. At the same time, he stresses that early engagement is the most effective approach, because trust and candid discussion at the outset can create meaningful benefits, including even unpublicized declinations.

 Key highlights:

  • Risk-based compliance shaped by business realities
  • Whistleblower evidence versus compliance rationale perspective
  • Data Analytics-Powered National Fraud Detection Center
  • Data-Driven Detection of Healthcare Fraud Cases
  • Tariff Evasion and Customs Fraud Crackdown
  • DOJ’s relaxed near-miss voluntary disclosure incentive

Resources:

More about U.S. Attorney David Metcalf

The Eastern District of Pennsylvania’s White Collar Justice Program

The DOJ’s National Fraud Enforcement Division

More about the 1950 classic Japanese film “Rashomon”

Contact Brent: brent@redflagsrising.com

More about Brent

Connect with Brent on LinkedIn

Contact Mike: michael.huneke@morganlewis.com

More about Mike

Connect with Mike on LinkedIn

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Blog

BOA Part 1: $1.2 Billion Compliance Failure: When Red Flags Meet Revenue

A compliance program is tested when someone identifies a risk that the business would prefer not to address. The question is not whether compliance can produce a memorandum. The question is whether the organization makes a timely, supportable decision and implements controls that address the concern.

The Bank of America enforcement record provides a detailed examination of that problem. FinCEN (Consent Order) describes repeated internal warnings, testing that identified weaknesses, and customer relationships that continued without controls commensurate with the risks. Its findings place management decisions about revenue and resources at the center of the compliance failure.

For chief compliance officers, the central lesson is straightforward: Identifying a material risk is the beginning of compliance work, not its completion. Over this four-part blog series, we will review the FinCEN Consent Order, OFAC’s Enforcement Release, and the Department of the Treasury’s Press Release to mine each for how this was allowed to occur, how it continued, the governance failures, the marginalization of compliance, and the penalties assessed. Today in Part 1, we examine the governance failure at the heart of the Bank of America enforcement actions: compliance personnel identified significant risks, but management did not ensure those concerns led to timely, effective corrective action.

Understanding the Enforcement Actions

On October 13, 2026, the Department of the Treasury announced enforcement actions involving FinCEN, the Office of the Comptroller of the Currency, and the Office of Foreign Assets Control. Treasury described combined penalties exceeding $1.21 billion for anti-money laundering and sanctions failures.

The penalty structure matters. FinCEN assessed $1.2 billion but credited the bank’s $750 million OCC payment, leaving $450 million payable under the FinCEN Consent Order. OFAC’s separate Enforcement Release states a settlement of $11,662,930. Adding the full FinCEN and OCC assessments together would therefore overstate the combined financial penalty.

The legal posture also matters. Bank of America admitted the facts and violations in the FinCEN Consent Order. It expressly limited its admission of willfulness to the civil Bank Secrecy Act enforcement standard. By contrast, OFAC resolved potential civil liability for apparent violations. These documents should not be characterized as a criminal guilty plea.

The Warnings Were Already Inside the Organization

Consider the relationship identified in the FinCEN Consent Order as Customer A, an online marketplace connecting sellers of salvaged vehicles with domestic and international buyers. The bank had maintained accounts for this customer since 1995. By 2022, compliance personnel had identified concerns involving third-party payments, limited visibility into the source of funds, and repeated fraud-related investigations. In July, compliance recommended that the customer’s accounts be considered for closure. Subsequent internal analysis identified more than 100 customer-related cases between 2020 and August 2022.

This was not simply a disagreement about a customer’s reputation. Compliance was identifying a weakness in the bank’s ability to understand the funds moving through the relationship. An important distinction must remain clear. The Consent Order records that no evidence shows Customer A orchestrated the underlying fraud. The concern was that its accounts appeared to have received and moved fraud proceeds, creating risks the bank needed to address. Suspicion concerning transactions is not proof that the customer knowingly participated in the underlying misconduct.

That distinction makes the compliance lesson more useful. An organization does not need to prove a business partner is a criminal before deciding the relationship requires stronger controls.

When Commercial Importance Becomes the Answer to a Different Question

Following an internal meeting in September 2022, the relationship manager prepared a memorandum describing Customer A as a “large and valued client” generating approximately $6 million in annual revenue. The memorandum emphasized the broader commercial relationship and the business line’s support for retaining it. Compliance personnel continued asking how the underlying risks were being mitigated. FINCEN consent order

Here is the governance problem: commercial value and risk mitigation answer different questions. Revenue explains why the business wants to retain a relationship. It does not establish that the relationship can be maintained within an effective control environment.

Nor does compliance independence require that every recommendation to terminate a relationship prevail. FinCEN expressly states that account closure is not the only appropriate response to heightened financial crime risk. Enhanced monitoring, restrictions on products or services, and other risk-based controls may be appropriate. The real question is whether the alternative works.

A defensible decision to retain a high-risk customer should explain what will change, who will implement it, what evidence will show it works, and what happens if the customer does not meet the agreed conditions. Without those elements, an alternative mitigation plan can become a way to defer the original decision.

A Mitigation Plan Is Not the Same as Mitigation

In March 2023, more than six months after compliance recommended closure, the relationship manager summarized proposed measures, including limiting payments to registered buyers or dealers. Compliance withdrew its closure recommendation based on the communication and implementation of those measures, while reserving the possibility of revisiting the decision.

However, Customer A continued processing third-party payments through its Bank of America account until June 2025. The bank did not adequately update the customer’s risk profile, ongoing monitoring, or other due diligence measures to address the continuing practice. Some other changes were implemented, but the central payment risk persisted.

This is where compliance activity and compliance effectiveness separate. A meeting is an activity. A mitigation plan is an activity. A customer assurance is information. None, standing alone, establishes that the risk has been reduced. For the CCO, the missing discipline is verification. When the organization decides to continue a relationship subject to conditions, those conditions need an owner, an implementation date, evidence requirements, and consequences for nonperformance.

Resources Are Also a Governance Decision

FinCEN found that management’s approach to transaction monitoring was influenced by the resources required to investigate additional cases. When remediation began, the bank estimated that investigative volumes would double and that approximately 750 additional personnel would be needed. FinCEN concluded that the bank had likely avoided hundreds of millions of dollars in compliance-related expenditures during the relevant period. That was FinCEN’s assessment, not a separately calculated figure of realized profit.

The business lesson is not that every compliance function should receive every requested dollar. Resource decisions need to address the actual risk. Management should not resolve a capacity problem by treating the activity that exceeds capacity as less important without a supportable risk basis.

What the CCO and Board Should Ask

As a comparison framework, the DOJ’s Evaluation of Corporate Compliance Programs (ECCP) examines whether a program is well designed, adequately resourced and empowered, and effective in practice. It also asks whether managers tolerate greater compliance risks to pursue revenue and how the company responds when compliance raises concerns. These are useful analytical questions here, not the legal standards under which FinCEN resolved this case.

Board oversight provides another comparison. In Marchand v. Barnhill, the Delaware Supreme Court emphasized the need for a good-faith effort to establish board-level monitoring of a critical compliance risk. Caremark liability involves a demanding bad-faith standard, not automatic liability whenever a control fails. The Bank of America documents discussed here are not Caremark judgments against its directors.

The practical board questions nevertheless follow naturally. Which material compliance recommendations remain unresolved? Which business decisions depend on mitigation that has not been verified? Which deficiencies have appeared repeatedly without an effective response? Those questions move oversight beyond receiving presentations to examining whether management is controlling the risk.

Three Key Takeaways

First, require decisions, not indefinite escalation. Material concerns need accountable decision-makers, documented reasoning, deadlines, and follow-through.

Second, separate commercial justification from control effectiveness. A valuable relationship may be retained, but its revenue does not demonstrate that its risks are mitigated.

Third, verify the conditions supporting the decision. Keep an approved remediation plan open until the organization has evidence that the relevant controls work.

The CCO question: When the business rejects or modifies a compliance recommendation, can you demonstrate that the alternative actually reduced the risk?

Today we examined the governance failure at the heart of the Bank of America enforcement actions: compliance personnel identified significant risks, but management did not ensure that those concerns produced timely, effective corrective action. FinCEN’s findings describe an organization that prioritized customer revenue and resource considerations while known risks persisted without commensurate controls.

The central lesson is not that compliance must prevail in every disagreement or that every high-risk relationship must be terminated. Decisions to retain those relationships must rest on demonstrable risk mitigation, not commercial importance alone. For CCOs, this means establishing accountable decision-makers, deadlines, documented reasoning, and verification that agreed measures work. For boards, it means examining unresolved exposure rather than merely receiving reports of completed activities. A mitigation plan does not establish that a risk has been mitigated. The organization must verify the result.

Join us Tomorrow

Management decisions about compliance don’t stay confined to committee meetings and customer relationship discussions. They also shape the technology that determines which risks receive attention and which remain uninvestigated. In Part 2, we turn to Bank of America’s Event Processor transaction monitoring system and FinCEN’s findings concerning unsupported design choices, investigative thresholds, alert suppression, gaps in monitoring coverage, and inadequate responses to testing.

Our focus shifts from whether management acted on known concerns to whether its automated controls could identify and escalate the relevant activity. We will examine the difference between reducing investigative workload and improving compliance effectiveness, with practical applications for data governance, model validation, and AI oversight. Every CCO must ask whether your technology addresses the intended risk, not simply whether it operates according to its configuration.

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Red Flags Rising

Red Flags Rising: S01 E47: David Metcalf, U.S. Attorney for the Eastern District of Pennsylvania

Mike and Brent welcome to the podcast the U.S. Attorney for the Eastern District of Pennsylvania, David Metcalf.

They discuss the U.S. Attorney’s background working as a government lawyer, a lawyer in private practice, and an in-house lawyer at a large company, and what perspectives that varied background has given him (01:42); the potential pitfalls of over-reliance on legal privilege, especially for company employees (09:00); the relevance of the Japanese classic film Rashomon (1950) to investigations and compliance, especially in terms of mooting various perspectives when making decisions where “knowledge” or “willfulness” is relevant (11:06); the important mission and objectives of the U.S. Department of Justice’s (DOJ’s) new National Fraud Enforcement Division (NFED) (13:07); how the U.S. Attorney sees trade and export or import enforcement unfolding nationally and in the Eastern District of Pennsylvania (19:46); the importance of frameworks and tools, such as Brent’s Fraud Four-Circle Framework to identifying and effectively responding to potential issues (23:53); the importance to the DOJ of voluntary disclosures and the incentives being offered to corporations today (26:56); and the broader work of the Eastern District of Pennsylvania, including how they develop and how people can report cases (33:07). They then conclude with the latest edition of Brent’s “Managing Up” segment (34:31).

More about U.S. Attorney David Metcalf

The Eastern District of Pennsylvania’s White Collar Justice Program

The DOJ’s National Fraud Enforcement Division

More about the 1950 classic Japanese film “Rashomon”

Contact Brent: brent@redflagsrising.com

More about Brent

Connect with Brent on LinkedIn

Contact Mike: michael.huneke@morganlewis.com

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Compliance Into the Weeds

Compliance into the Weeds: Amex AML Enforcement: Credit Card Risk, SAR Failures, and Board Accountability

The award-winning Compliance into the Weeds is the only weekly podcast that takes a deep dive into compliance topics, literally going into the weeds. Looking for hard-hitting compliance insights? Look no further than Compliance into the Weeds! In this episode of Compliance into the Weeds, Tom Fox and Matt Kelly discuss the recent OCC and Federal Reserve enforcement actions against American Express.

The penalties included a $350 million civil penalty, cease-and-desist orders, and extensive compliance obligations tied to weaknesses in customer due diligence, suspicious activity reporting, staffing, and risk assessment. Tom highlighted that Amex processed billions of transactions, many ordinary credit-card transactions, showing banks must know all customers, not just high-dollar activity, and noted regulators’ broader pattern of similar actions across the industry as financial innovation outpaced compliance investment.

Matt noted that regulators depend on SARs as critical inputs for broader enforcement “mosaics,” explaining why SAR failures draw intense scrutiny. The orders’ notable feature is direct board involvement, requiring a board-level compliance committee and action plan to hold management accountable, with a strong focus on end-to-end documentation and evidence trails; they see no facts suggesting the egregious, employee-involved criminality seen in TD Bank.

Key highlights:

  • Industry Pattern and Root Causes
  • Innovation as Compliance Risk
  • Board Oversight Mandates
  • Why SARs Matter
  • DOJ Risk and TD Bank Comparison
  • Disjointed Compliance and Fixes

Resources:

Tom in the FCPA Compliance Report, Part 1 and Part 2

Tom

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A multi-award-winning podcast, Compliance into the Weeds, was recently named one of the Top 25 Regulatory Compliance Podcasts, Top 10 Business Law Podcasts, and Top 12 Risk Management Podcasts. Compliance into the Weeds has been awarded a Davey, Communicator, and W3 Award, all for podcast excellence.

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Blog

AMEX’s $350 Million AML Penalty: Part 2 – Lessons for CCOs and Boards

Paying a penalty and demonstrating an effective compliance program are different tasks. The AMEX enforcement actions make that distinction concrete.

In Part 1, we examined the OCC’s $350 million civil money penalty and findings concerning risk assessment, customer information, suspicious activity reporting, resources, training, and independent testing. The Federal Reserve’s Order focuses on enterprise-level change. Its starting point is board oversight.

For compliance professionals across industries, that is the opportunity: use the remediation requirements to challenge your own governance and controls. The orders bind the named entities. The broader applications below are recommendations, not claims that banking-specific obligations apply to every company.

Board oversight must produce accountable decisions

Within 90 days of the order’s effective date, AMEX’s board must submit a written oversight plan to the Federal Reserve. The plan must explain how directors will hold senior management accountable for remediation, ensure adequate resources, oversee an effective enterprise-wide BSA/AML compliance risk management program, and secure effective reporting and escalation. The board’s responsibilities expressly encompass remediation under both the Federal Reserve order and the OCC order.

Notice the allocation of responsibility. The board oversees. Senior management executes. Neither role should disappear into an instruction that “compliance will handle it.” For another company applying this lesson, I recommend that each material remediation item identify an accountable executive, responsible business owner, required resources, completion criteria, and independent reviewer. The CCO should help coordinate and challenge the work without becoming the default owner of every operational control.

COSO’s Internal Control–Integrated Framework provides a corresponding board-oversight benchmark. Under Principle 2, directors should independently oversee internal control development and performance. Translate that principle into board practice. Record the questions directors asked, the evidence management provided, resource decisions, and the follow-up required. A presentation should support an oversight decision, not substitute for one.

Make enterprise-wide compliance operational

The Federal Reserve requires AMEX to submit an acceptable plan within 90 days to improve enterprise-wide BSA/AML compliance risk management. Required content includes business-line and legal-entity policies, customer due diligence, cross-business-line suspicious activity reporting, and transaction-monitoring methodologies. Establish, analyze, test, and document monitoring rules and thresholds, paying attention to factors such as customer, product, or service, and geography.

That requirement suggests a practical exercise for any CCO: select a significant risk and trace how the organization treats it. Who collects the relevant information? Who assesses it? What triggers review? Which team investigates? When does senior management receive the issue? What reaches the board? But do not stop at the organization chart. The order calls for risk-based oversight of BSA/AML systems and the use of information from network partnerships, ATM partners, and third parties supporting compliance.

For a nonfinancial company, a comparable review could follow a high-risk distributor relationship from onboarding through orders, payments, exceptions, and termination. Test the handoffs, including information held by outside providers. The Federal Reserve also requires the travel-related services subsidiary to submit an acceptable Office of Foreign Assets Control (OFAC) compliance plan within 90 days. It must address risk assessment, ongoing job-appropriate training, and enhanced policies and screening procedures. This is a distinct sanctions-compliance remediation requirement; it should not be recast as a finding of a particular prohibited transaction.

Use COSO to examine the connections between controls

COSO organizes internal control around five components: control environment, risk assessment, control activities, information and communication, and monitoring activities. The framework emphasizes that these components must work together, not exist as separate administrative exercises. Applied to the AMEX findings, I recommend testing a connected chain of evidence.

Begin with the commercial activity and its risk assessment. Identify the resulting control, the person responsible, the information required, the escalation decision, and the independent test. Then examine what happens when one element fails. For example, don’t accept a customer-risk rating as useful just because a system has a completed field. Ask whether supporting information is reliable, whether the rating changes monitoring, and whether testing confirms that the resulting controls address the assessed risk.

COSO’s Principles 16 and 17 reinforce evaluating controls and promptly communicating deficiencies to those responsible for correction, including senior management and directors where appropriate. The practical point is to test relationships between controls, not merely their individual existence. Otherwise, management may demonstrate that every department completed its task without demonstrating that the overall risk was addressed.

Resource commitments need an operational explanation

The Federal Reserve requires the board to ensure senior management has adequate resources for required remediation. Make that discussion more useful than a comparison of this year’s compliance budget with last year’s. You should perform a capacity assessment for each critical control. Identify the workload, expertise, systems, quality-review capacity, and unresolved dependencies. Where management proposes automation, require evidence that the tool handles the relevant risk and that someone owns exceptions.

The DOJ’s 2024 ECCP provides a useful cross-check: evaluate program design, resources and authority, and effectiveness in practice. Its resource analysis should also examine personnel qualifications and compliance’s access to the board.

A board paper should therefore explain what a resource request will accomplish and what risk remains without it. Ask management to identify work that cannot be completed to the required standard, rather than presenting an unexplained staffing total.

Accountability must survive changes in personnel

Paragraph 4 of the Federal Reserve order deserves careful attention. Based on the firm’s investigative record compiled from 2024 to the order’s issuance, it prohibits the firm from directly or indirectly retaining individuals who meet all three specified conditions: participation in the underlying misconduct, formal disciplinary action connected to it, and separation or legal termination connected to that misconduct. The restriction covers retention as an officer, employee, agent, consultant, or contractor within the firm or its subsidiaries or affiliates.

This is not a blanket prohibition covering everyone who was investigated. The conditions are cumulative. The order also requires continued cooperation and substantial assistance with Federal Reserve investigations of parties affiliated with the involved institution.

For other CCOs, the lesson is to connect substantiated investigation outcomes with hiring, contracting, and vendor controls. Subject to applicable employment and privacy requirements, test whether a person excluded through one channel could return through another. Require documented review rather than allowing a change in job title or engagement structure to bypass accountability.

Remediation requires evidence, not just a timetable

The Federal Reserve requires implementation timelines with specific component deadlines. Approved plans must be adopted within ten days of approval and then promptly implemented. Amendments or rescissions require prior approval from the Reserve Bank. Board or authorized committee progress reports are due within 45 days after the end of the first full calendar quarter following the order and each quarter thereafter, addressing actions, schedules, and results. The 90-day submissions are plan deadlines, not requirements to complete every remediation measure within 90 days. For your program, distinguish a completed task from a corrected risk. A revised procedure is a deliverable. Evidence that employees apply it correctly is a different milestone.

The ECCP similarly examines root-cause analysis, control testing, lessons learned, and whether improvements can prevent or detect similar misconduct. The ECCP asks, “What methodology has the company used to identify, analyze, and address the particular risks it faces? What features of the company reduce its exposure to such risks? Is the company’s approach to risk management proactive or reactive? What information has the company identified and collected to help detect the type of misconduct in question? How has that information informed the company’s compliance program?” Use those questions to challenge proposed closure evidence.

The bottom line is that you must demonstrate implementation and an appropriately independent reviewer to evaluate operating effectiveness. Define the testing period, evidence, and acceptable results before the item is marked complete.

CCO actions and board questions

  • For the CCO: build one end-to-end evidence trail. Select a material risk and connect the assessment, controls, information, decisions, escalation, testing, and corrective action. Identify exactly where evidence is missing.
  • For the board: challenge ownership and capability. Which executive owns the unresolved risk? What resources are missing? What decision does management need from directors now?
  • For both: define success before declaring completion. What independent evidence supports closure? Have the underlying causes been addressed? What would alert us that the problem has returned?

Summary

The bottom line is that a compliance program must reflect the business’s actual risks and demonstrate that its controls work. The OCC’s central finding was a mismatch between the bank’s risk assessment and its operations: the assessment emphasized relatively narrow deposit activities while inadequately addressing dominant credit and charge card products. Weak customer identification, due diligence, suspicious activity reporting, independent testing, staffing, and job-specific training compounded that failure.

AMEX processed about $13 billion in suspected trade-based money laundering activity between June 2014 and May 2025 without timely identifying and reporting its full scope. It carefully distinguishes those findings from a conclusion that AMEX itself laundered that amount. The broader lesson is that completing assessments, filing reports, and delivering training do not, by themselves, establish program effectiveness.

We next considered the shift from compliance failures to governance and remediation, emphasizing that directors must oversee the work while senior management remains accountable for execution. Remediation should have identifiable executive and business owners, adequate resources, clear completion criteria, and independent review, rather than becoming an undefined assignment for the compliance department.

Drawing on COSO’s Internal Control Framework and the DOJ’s Evaluation of Corporate Compliance Programs, we reviewed how risk assessments, controls, information, escalation, and monitoring work together, and whether personnel and systems can perform the required work. The practical message for CCOs and boards is to distinguish a completed task from a corrected risk: a revised procedure is not proof of effective remediation. Leaders should require evidence that underlying causes have been addressed, controls operate effectively, and recurring problems will be detected. Risk alignment, accountability, and demonstrated effectiveness must become part of how the business is governed.

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AMEX’s $350 Million AML Penalty: Part 1 – What Went Wrong

A compliance risk assessment should describe the business the company actually conducts. What happens when it does not?

The AMEX enforcement actions provide a consequential answer. On October 8, 2026, the Office of the Comptroller of the Currency (OCC) announced a $350 million civil monetary penalty (OCC Penalty) and a cease-and-desist order(OCC Order) against American Express Company and American Express Travel Related Services Company, Inc. (collectively, AMEX) for Bank Secrecy Act and anti-money laundering deficiencies. The Federal Reserve separately issued a cease-and-desist order (FED Order) against AMEX. The OCC Press Release noted that the monetary penalty was imposed by the OCC, not both agencies.

For Chief Compliance Officers, directors, counsel, and internal auditors, the central lesson extends beyond banking: a compliance program must reflect the business’s actual risks, and oversight must demand evidence that it works. Over the next couple of blog posts, we will explore the Orders and Penalties. Today, we’ll start with what went wrong at AMEX.

What the enforcement record establishes

The OCC found violations involving the BSA/AML program, suspicious activity reporting, customer due diligence, and customer identification. According to the OCC Order, from approximately June 2014 through May 2025, the bank processed approximately $13 billion in suspected trade-based money laundering activity. That figure includes suspicious card charges and associated repayments. In some cases, the activity passed through accounts linked to bank insiders. The bank periodically reported suspicious activity but lacked the controls and monitoring capabilities to identify and report its full scope promptly.

Precision matters. The $13 billion figure does not mean AMEX laundered that amount, nor should it be described as $13 billion in distinct criminal proceeds. The findings concern suspected activity and failures in detection, evaluation, and reporting. The reference to insider-associated accounts also does not establish that every associated individual knowingly participated in misconduct.

The risk assessment did not match the business

The OCC’s most instructive finding concerns the program’s starting point. The bank’s risk assessment focused on its relatively narrow demand deposit products and services while giving insufficient attention to its more dominant credit and charge card products. This was a mismatch between the business being conducted and the risks being assessed.

For a CCO, the question should be immediate: does our assessment accurately represent how our company generates revenue, moves money, serves customers, and uses intermediaries?

The DOJ’s 2024 Evaluation of Corporate Compliance Programs (ECCP) begins its risk-assessment analysis by understanding the company’s business and examining how compliance scrutiny and resources address its risks. The ECCP asks “how the company has identified, assessed, and defined its risk profile, including specific factors that mitigate the company’s risk, and the degree to which the program devotes appropriate scrutiny and resources to the remaining spectrum of risks.” That provides a useful comparison here, not an additional finding against AMEX or the legal basis for these orders.

Consider a hypothetical manufacturer that rigorously reviews employee expenses but inadequately evaluates high-risk distributor payments. The expense controls may function exactly as designed. They still do not answer the more consequential risk question. The lesson is that the largest business line does not always present the greatest compliance risk. Management should demonstrate a defensible relationship between business activities, assessed risks, and control coverage. Completing an assessment is not the same as assessing the right business.

Customer information failures undermined monitoring

The OCC identified weaknesses in two distinct functions. Customer identification procedures did not adequately support a reasonable belief that the bank knew each customer’s true identity. Ongoing customer due diligence did not effectively establish the nature and purpose of customer relationships, undermining risk ratings and monitoring. Read together, these findings describe more than incomplete onboarding files. They connect customer knowledge to the ability to recognize transactions that warrant further investigation.

For businesses outside banking, the useful analogy is the difference between collecting a distributor’s documents and understanding what the distributor actually does. Who is involved? What commercial purpose does the relationship serve? What activity would fall outside that purpose?

The OCC also found systemic breakdowns in suspicious activity monitoring, investigation, and reporting, resulting in late, missed, or incomplete suspicious activity reports (SARs). Those failures extended beyond suspected trade-based money laundering to other suspicious activity. Importantly, the bank did file some reports. The OCC criticized the bank for failing to promptly identify and report the full scope of the activity.

That distinction should change how a compliance committee evaluates performance. Ask what the reporting process covered, what it missed, and how those conclusions were tested. A report count alone does not establish the answer. The same challenge should be applied to investigation totals, due diligence completions, and training statistics.

Audit, resources, and training did not provide effective safeguards

The OCC found that the internal audit did not effectively monitor BSA/AML compliance. Independent testing was neither appropriately scoped nor effective relative to the bank’s risk profile, contributing to delayed detection and remediation of deficiencies. The key takeaway is that an audit plan should challenge the compliance program’s assumptions, not simply confirm that documented procedures were followed. Testing a process against an incomplete view of risk can leave the underlying problem untouched.

The findings also addressed staffing and capability. Historically, the bank has not supported its BSA/AML program with appropriate resources, including personnel with the necessary skills, expertise, and training. Employee training did not adequately address job-specific responsibilities, impairing identification, escalation, and reporting of risks and suspicious activity.

For compliance leadership, those findings support a practical distinction: headcount, competence, and operational capacity should be assessed separately. Hiring more people should not substitute for determining which expertise a control requires.

Likewise, training should be evaluated against decisions employees must make. Can an investigator recognize a relevant pattern? Can an account manager identify a concern and route it correctly? Can a director challenge an explanation of control effectiveness? These are better questions to bring to the next program review than whether everyone completed the assigned course.

The Federal Reserve extended the concern to the enterprise

The FED Order identified significant deficiencies in the enterprise-wide financial crimes risk management program, including transaction monitoring, fraud referral processes, third-party risk assessment, and financial crimes risk management. Its order directs the AMEX board to address management accountability, remediation resources, program effectiveness, and reporting and escalation.

The broader governance lesson is not that the compliance department alone must work harder. Management responsibilities and board information should be examined alongside the technical controls. A remediation plan should identify who must act, what resources are required, and how directors will know whether the action worked.

AMEX’s public response

In its October 8 public statement, AMEX said internal and external reviews identified areas for improvement. It described investments in people, technology, training, governance, and oversight, as well as cooperation with regulators and law enforcement. Chairman and Chief Executive Officer Stephen J. Squeri stated, “While we have made meaningful progress, we know there is more work to do.”

The company also said the penalty would not affect full-year 2026 guidance, that the orders imposed no asset cap, and that anticipated remediation costs would not affect 2027 guidance. These are company statements, including forward-looking expectations, not regulatory findings about remediation effectiveness. The Federal Reserve separately acknowledged cooperation and remedial actions already undertaken. Progress deserves recognition, but corrective work should not be confused with demonstrated completion.

Three practical takeaways

  1. Start with business reality. Compare the risk assessment with actual products, transaction flows, customer relationships, and third-party arrangements. Require explanations for significant gaps in coverage.
  2. Challenge evidence of effectiveness. Ask the internal audit to test whether controls identify the risks that matter, not merely whether staff follow procedures. Examine decision quality and timeliness alongside activity counts.
  3. Make capability a governance discussion. Bring the board a clear account of required expertise, unresolved resource constraints, and the risks those constraints leave exposed.

The question for the next board meeting is straightforward: What evidence demonstrates that our compliance program addresses the business we actually operate?

Join us tomorrow, in Part 2, as we examine how the Federal Reserve’s remediation requirements can help CCOs and directors turn that question into accountable action.