Compliance Professionals Risk Legal Challenges and Severe Consequences

Introducing Our Author

Susan Palm, Chief Revenue Officer at 4CRisk.ai, has over 30 years leading teams focused on Compliance, Regulatory Affairs, InfoSec, Risk Management, Sales, and Customer Success. In this blog she shares her extensive experience helping companies stay ahead of risk events and regulatory changes with us to review a cautionary tale on risks and challenges for organizations and regulatory, compliance and risk professionals.

Implications of a Compliance Quandary

Compliance managers today face a myriad of challenges, and a recent incident involving the Office of the Comptroller of the Currency (OCC) sheds light on the complexities and challenges of the Compliance Manager role.

In February, 2024, Colleen Kimmel, former General Counsel of Sterling Bank and Trust, found herself at the center of the storm when the OCC took action against her for the bank's failure to maintain a robust Bank Secrecy Act (BSA) compliance program to the OCC order.

The Bank Secrecy Act (BSA), enacted in 1970, is a U.S. law that combats money laundering and other financial crimes. It requires financial institutions to implement various measures to ensure transparency and identify suspicious activity.

The aftermath of the Sterling Bank debacle paints a vivid picture of the legal challenges and severe consequences that compliance professionals may face, even in the absence of criminal convictions or financial penalties. The regulators made it clear that Compliance Managers bear the weight of responsibility for ensuring the integrity of their institution’s financial practices. In addition to potential legal accountability, the professional stigma that may result to Compliance Managers from such situations may impact future career prospects and industry standing.

The Sterling Bank incident serves as a precedent for heightened scrutiny of compliance practices industry wide. Regulators are emphasizing the importance of proactive compliance measures, and increased regulatory oversight continues. Compliance professionals must brace for more rigorous assessments, making it imperative to adopt advanced technologies and robust internal controls.

• Legal Accountability: The Cease-and-Desist Order underscores the legal accountability that compliance professionals’ shoulder. While Kimmel faced obstructive actions and lacked the authority to act independently, regulators made it clear that the compliance buck stops with the Compliance department. The order memorializes her perceived failure to ensure a thorough investigation into suspicions surrounding the ALP program, highlighting the legal consequences of inadequate oversight.
• ‍Potential Litigation: Compliance professionals, like Kimmel, could find themselves vulnerable to legal action from multiple fronts. Shareholders, investors, or other stakeholders may seek legal recourse, alleging negligence or breach of fiduciary duty. The fallout from such legal battles can be financially and personally draining, further underscoring the need for compliance managers to proactively address issues within their purview.
• ‍Increased Scrutiny on Compliance Practices: The Sterling Bank incident serves as a precedent for heightened scrutiny of industry-wide compliance practices. Regulators are now emphasizing the importance of proactive compliance measures, and the fallout from the case is likely to trigger increased regulatory oversight. Compliance professionals must brace for more rigorous assessments, making it imperative to adopt advanced technologies and robust internal controls.
• ‍Personal Liability: The OCC's action against Kimmel reinforces the notion that compliance professionals may face personal liability for lapses in their institution's compliance program. Despite facing internal constraints and challenges, the onus is on compliance managers to navigate these obstacles effectively. This personal liability extends beyond the professional realm, potentially impacting personal assets and financial well-being.
• ‍Reevaluating Compliance Strategies: The legal ramifications of the Sterling Bank case underscore the urgent need for compliance professionals to reevaluate and strengthen their compliance strategies. Proactive risk management, timely reporting of suspicious activities, and continuous enhancement of internal controls are imperative. Compliance managers should work collaboratively with legal teams to fortify their positions and safeguard against potential legal fallout.

How Could AI-Powered Compliance Technology Have Helped Avoid this Situation?

Institutions like Sterling Bank are seeking out new innovative solutions and tools to navigate regulatory complexities while maintaining operational efficiency. The integration of Artificial Intelligence (AI) offers promising avenues to address these challenges. By harnessing predictive, generative, and conversational AI technologies, institutions can bolster compliance efforts, streamline operations, and enhance customer service.

As an example, 4CRisk.ai’s Compliance Map tool offers advanced features designed to empower compliance professionals in navigating the complex regulatory landscape effectively.

Let's explore how 4CRisk’s AI-powered Compliance Map helps companies navigate the complexities of regulatory compliance more effectively:

• Early Detection of Anomalies & Gaps: Compliance Map and AI provide advanced capabilities that could have detected irregularities and gaps in the ALP program, such as unusual patterns, discrepancies in information, and gaps in internal controls, policies, and procedures.
• ‍Enhanced Audit Trail: Compliance Map maintains a comprehensive audit trail, recording all compliance-related activities, documents, and changes. This feature could have provided crucial evidence of Colleen Kimmel's attempts to address suspicions surrounding the ALP program, mitigating the repercussions she faced.
• ‍Enhanced Enterprise Taxonomy: By ensuring consistency and alignment across various compliance documents, Compliance Maps could have facilitated seamless integration and interpretation of regulatory requirements. This harmonization would have provided a clear and unified framework for compliance management, enabling the bank to navigate complex regulatory landscapes with greater efficiency and accuracy.

Predictive AI could have empowered the bank to analyze vast amounts of data, identifying patterns and trends to anticipate potential compliance breaches or fraudulent activities. By leveraging predictive AI algorithms, institutions are able to proactively identify and mitigate risks, ensuring regulatory compliance while safeguarding its reputation and financial integrity.

Generative AI automates the creation of compliance artifacts based on existing data and regulatory guidelines. By harnessing generative AI capabilities, institutions can streamline compliance and internal control documentation processes, saving time and resources while ensuring accuracy and consistency across all materials. Additionally, conversational AI tools facilitate efficient communication and collaboration amongst the organization, customers, regulators, and other stakeholders and improve workflow efficiency and the decision-making processes.

Summary: A Call for AI Powered Regulatory Compliance Technology and Collaboration

The spotlight on compliance practices intensifies, adding to the level of scrutiny on compliance managers. Learning from experiences such as Colleen Kimmel, compliance managers must leverage cutting-edge solutions like AI to enhance surveillance and reporting capabilities, along with equipping themselves with the authority necessary to execute.

4CRisk.ai’s Compliance Map tool offers advanced features designed to empower compliance professionals in navigating the complex regulatory landscape effectively. Contact us today for a personalized demo and evaluation of how 4CRisk.ai’s Compliance Maps can strengthen your organization's compliance practices.

Check out these related blogs and resources‍

• https://www.4crisk.ai/post/td-banks-3-billion-compliance-failure-how-compliance-mapping-could-have-prevented-catastrophic-oversight
• ‍https://www.4crisk.ai/post/compliance-three-key-actions-to-leveraging-ai-successfully-in-2025 ‍
• https://www.4crisk.ai/whitepapers/a-practical-guide-to-ai-agents-and-co-pilots