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Post-9/11 changes in federal banking laws have just claimed their latest victim. Federal prosecutors recently announced that The Bank of New York Co. (BNY) admitted responsibility for failing to comply with several enhanced provisions of the Bank Secrecy Act, which Congress amended four years ago when it passed the USA Patriot Act. Primary responsibility for the noncompliance, prosecutors made clear, rested with BNY’s law department. Though the bank escaped criminal charges, it must carry out a sweeping array of in-house reforms or face the possibility of future indictment. In a nonprosecution agreement with the U.S. attorney’s offices for New York’s eastern and southern districts, BNY admitted that by failing to implement effective anti-fraud programs, it aided and abetted two separate crimes that occurred between 1991 and 2002. One was a money laundering scheme that funneled billions of dollars from Russia through the bank; the other involved sham escrow agreements at a BNY branch. The bank also admitted that even after officials learned about the escrow fraud, they failed to report it promptly to the government as required by law. BNY’s law department was headed during the most serious compliance failings by J. Michael Shepherd, who became GC in 2000 and left in 2004. Shepherd declined to comment about the agreement. According to a BNY spokesman, Shepherd left the bank “on his own terms.” He is now GC of the Bank of the West in San Francisco. John Liftin, BNY’s current general counsel, said he can’t discuss the agreement, since its main aspects were already agreed on by the time he joined BNY in April 2005. An ‘unprecedented’ post If BNY doesn’t fulfill the terms of the the agreement over the next three years, it can be indicted on the charges described in the document. The deal calls on BNY to pay $38 million in penalties and retribution-one of the biggest monetary punishments ever imposed on a financial institution-but just as significant are the institutional reforms that prosecutors demanded. In addition to hiring an independent monitor, BNY also agreed to create an unprecedented post in its legal department called “head of law enforcement and investigations.” In mid-2004, the bank filled this position with Matthew Biben, a veteran federal white-collar criminal prosecutor. Biben, who reports to GC Liftin and CEO Thomas Renyi, is responsible for “responding to all law enforcement inquiries and coordinating the preparation” of suspicious activity reports. Since joining the bank, Biben has hired seven additional attorneys.

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