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

’ s economic stability over the past few years. indeed, cornell provides a clear example of how a university can play a key role in its local economy. the benefits of the higher education industry go beyond their direct economic contributions, such as employment and spending, for a very important reason : they can increase a region ’ s stock of human capital – that is, the total supply of knowledge and skills in its workforce. a region ’ s human capital contributes to its economic success and resiliency. the educational activities of a region ’ s colleges and universities help build the skills of the local workforce. in addition, the knowledge created by colleges and universities through research activities can play a key role in starting and supporting local businesses. businesses can use university expertise, infrastructure and research findings to help them develop cutting edge products and services. furthermore, universities often employ local businesses to develop and commercialize products that arise from their research activities. this dynamic can expand local economic activity and consequently create new jobs for high - skilled workers in a region. these dynamics are clearly visible in ithaca, where a large number of local companies – in industries ranging from information technology to medical equipment to agriculture – are closely tied to cornell. many of these companies were started by cornell ’ s faculty and students and have remained in the local economy to stay connected to the university. other companies have been attracted to the region because of the access afforded to specific knowledge or new products and processes invented at cornell. higher education institutions such as cornell play a vital role in upstate new york ’ s economy. the relative stability of the higher education industry has, not surprisingly, contributed to a strong economic performance in recent years. ithaca ’ s housing market is among the healthiest in the state, and it has experienced relatively strong employment growth during and since great recession. indeed, unlike most of its upstate peers, ithaca has gained population throughout the past decade. what is the fed doing now? since the beginning of the downturn, the fed has actively used monetary and regulatory policy to help support economic activity and improve economic outcomes – here in ithaca and across the nation – relative to what would have happened in the absence of this support. with regard to monetary policy, the fed has in place a highly accommodative stance. the fomc has said that it will keep short term interest rates at exceptionally low levels for an extended period of time. the fed also retains large amounts of mortgage - backed bonds acquired in order to support the housing market and help bring