thomas c baxter, jr : reflections on the new compliance landscape remarks by mr thomas c baxter, jr, executive vice president and general counsel of the federal reserve bank of new york, at “ the new compliance landscape : increasing roles – increasing risks ” conference, new york city, 23 july 2014. * * * the views expressed are the views of the author and do not necessarily reflect the views of the federal reserve bank of new york, or any component of the federal reserve system. let me begin by thanking the risk management association, pwc, debevoise & plimpton, and my friend paul lee for inviting me to participate in this conference. of course, i need to give what sometimes sounds like a miranda warning – my remarks are personal, and do not represent an official position of the federal reserve bank of new york, or any part of the federal reserve system. there is nothing i will say that can be used against them. i am going to address three specific compliance problems : economic sanctions, tax evasion, and foreign corrupt practices. i will use these three compliance problems to illustrate a larger point about organizational culture. if organizational values do not support the rules that organizations use to guide the behavior of employees, and worse, if organizational values actually conflict with those rules, the organization is headed for troubled territory. in my remaining time, i will elaborate on this fundamental point. let me start with economic sanctions. we have the recent case against bnpp for its conduct in evading u. s. sanctions related to iran, sudan and cuba. the case is noteworthy because the disposition involved pleas to federal and state criminal violations, and a record fine of nearly $ 9 billion. the bnpp case is not the only case against a financial institution for economic sanctions violations. there have been a series of others. every one of this series of cases concerns a foreign bank. observers ask, “ why are all of these economic sanctions cases against foreign banks? ” before offering my answer, let me start with some “ not ’ s ”. in my view, it is not that u. s. financial institutions are so much more compliant than foreign institutions. i will avoid an ugly name - and - shame ritual, where i would identify the u. s. financial institutions that violated u. s. law. it is not that u. s. prosecutors are xenophobic individuals who are bound and determined to target only foreign institutions. i know from personal knowledge that prosecutors have followed the evidence

management has been implemented which imposes appropriate supervision on the increasing outsourcing of business operation. amcm has carried out guideline on management of customer complaints. to enhance the protection of financial consumers, a draft regulatory guideline on sale and offer of financial products and related bank disclosure has been rolled out for consultation. in this respect, amcm has conducted a number of discussions with practitioners on the guideline. we are striving to strike a balance between supervision and market development by arriving at a consensus with all parties concerned at an earlier date and hope that it can be implemented as soon as possible this year. moreover, in light of past experience and based on the appraisal and suggestion of international organizations, amcm has revised and issued related guidelines on aml and cft. it is worth mentioning that, after a solid year of endeavour and coordination, the macao distributor institutions of lehman minibonds have proactively proposed a repurchase arrangement, under which 99 % of the affected investors have come to terms with the distributors. last year saw the start of the business of rmb settlement for cross - border trade. the scope of rmb business for individuals has also been permitted to enlarge which purports that rmb business has entered into a new stage. at the same time, amcm has promoted business communication and cooperation between local financial institutions, the mainland and portuguese speaking countries. through visits, studies and seminars, understanding with each other has been enhanced which has laid down solid foundation for future cooperation. moreover, through participation in the framework mechanism for study and planning relating to closer economic partnership arrangement ( cepa ) and outline of the plan for the reform and development of the pearl river delta, amcm has injected momentum into the realization of harmonious cooperation of financial business of the two regions. it has also created more diversified business cooperation opportunity for the industry which has served to enlarge the scope of business for our financial sector. in fulfilling insurance supervisory work, amcm has carried out offsite inspections on insurance and retirement fund management institutions, executed effective supervision, aided by corresponding onsite inspections to enhance risk supervision. at the same time, to enhance solvency of insurance companies, amcm has perfected the requirements for quality of guaranteeing assets and established regulatory system for technical reserves, which will ensure that the institutions are equipped with appropriate financial capability and liquidity. although the market has experienced some volatility brought about by the financial tsunami, local