Five Questions with Shirley U. Emehelu and Rosh H. Jaffe, Co-Leaders of CSG’s Banking & Finance Practice

Shirley U. Emehelu and Rosh H. Jaffe, co-leaders of CSG’s Banking & Finance practice, discuss the various factors that prompted the firm to strategically refresh the practice with the duo at its helm, as well as areas they expect to be of critical importance to those operating in the sector over the coming years, in the Q&A below.

Q: What prompted CSG to refresh its banking and finance practice?

Rosh H. Jaffe: Servicing the legal needs of the banking and financial services sector has long been a core practice at CSG. However, Shirley’s arrival and experience handling anti-money laundering (AML), Bank Secrecy Act (BSA) compliance and financial fraud matters, offered an opportunity to more formally bridge our corporate banking and finance practice with our white collar and government investigations practice, thus creating a comprehensive suite of services in support of the sector.

Q: What kinds of matters will the team focus on?

Shirley U. Emehelu: In addition to traditional transactional lending matters overseen by Rosh, I will spearhead matters on behalf of financial institutions, their executives and directors related to financial crimes defense and regulatory compliance – spanning U.S. AML and economic sanctions laws and regulations, including those administered by OFAC, FinCEN, the Federal Reserve, FDIC, the National Credit Union Administration, the OCC and other federal and state regulators – and interface with state and federal law enforcement on behalf of clients in connection with such matters.

We will also assist in the development and implementation of proactive compliance programs and, as needed, conduct responsive internal investigations and advise on remedial measures.

Q: What is the practice’s typical deal size? Is there an emphasis on any particular segment of the sector?

RHJ: On the lending side our focus is on middle-market loan transactions across asset classes generally in the $5-100 million range. However, our practice is equipped with the resources and experience to scale with the needs of our regional and community bank clientele to money center financial institutions, foreign-based banks with domestic operations, credit unions and traditional commercial lenders.

SUE: The practice further extends to hedge funds, investment banks, cryptocurrency exchange platforms and broker-dealers – as well as organizations that some may not expect, such as gift card companies and online payment remittance services. Essentially, any entity susceptible to fraudulent financial activity could benefit from our guidance.

Q: What are a few key regulatory pressures the team is seeing in the marketplace now?

SUE: The U.S. financial system remains the backbone of global commerce – both for aboveboard transactions and for dark money. And, over the last several years, we have witnessed constant changes in laws, regulations and sanctions in the AML context. Now, more than ever, the regulatory heat is on.

We have seen a series of scandals besiege financial institutions, ranging from Central States Capital Markets’ AML/BSA charges in December 2018 to news surfacing in mid-2019 that federal authorities were investigating Deutsche Bank’s handling of suspicious activity reports (SARs). And just last week, FINRA fined BNP Paribas $15 million for deficiencies in the broker’s anti-money laundering program.

RHJ: The release of the Panama Papers, which revealed the myriad ways that criminals use shell companies and offshore structures to conceal cash, has also heightened banking regulators’ interest in increasing transparency surrounding ultimate beneficial ownership (UBO) of banking customers. Operating in this climate, banks must have robust Know Your Customer (KYC) and AML programs in order to satisfy regulatory compliance rules. Even title companies have found themselves in the danger zone and are now subject to AML compliance requirements under FinCEN’s recently implemented (and expanded) Real Estate Geographic Targeting Orders with respect to all-cash residential real estate purchases.

SUE: A recent example of an added regulatory pressure: the CFTC, FinCEN and SEC issued a joint statement earlier this month underscoring that digital asset companies are subject to AML and counter-terrorism financing obligations under the BSA. As such, they are now expected – like their more traditional counterparts in the sector – to implement an effective AML program and comply with recordkeeping and reporting requirements, including SARs requirements.

Q: Which do you think are the most complex compliance-related challenges facing the financial services sector today?

RHJ: The costs of implementing compliance programs that pass regulatory muster can be prohibitive for smaller banks, and often forces consolidation to achieve adequate scale.

Additionally, deal teams charged with generating new business in today’s particularly competitive marketplace require sound legal counsel from inception to loan structure and documentation stages in order to ensure they can deliver a product in an effective fast to market manner.

SUE: Information overload and complex, sometimes conflicting, jurisdictional regulations are often major causes of frustration for in-house counsel and compliance executives.

The sheer volume of data housed and conveyed through banks makes it particularly difficult to differentiate between red flags, false positives and actionable patterns that should be remediated by senior management and potentially disclosed to regulators and law enforcement authorities. An automated approach to AML has become market standard, and banks will need advice on best ways to enhance and leverage their FinTech in order to succeed. Artificial Intelligence and machine learning capabilities will be critical to effective AML compliance programs. Such enhancements will equip firms with the ability to parse actual suspicious activities from false positives. At the same time, banks will need to be cognizant of cybersecurity risks as they move to Cloud technologies for tasks such as security analytics, KYC verifications, consumer payments and credit scoring.

Additionally, given the inherently cross-border nature of banking transactions, which invariably involve voluminous transactions across both state lines and international borders, financial institutions are faced with the significant challenge of complying with not only U.S. federal and state banking laws and regulations, but also potentially foreign laws and regulations.