On Monday, the state of Florida moved a step closer towards amending its money laundering statute to include the nefarious use of bitcoin and other virtual currencies. The bill, H.B. 1379, has sailed through a committee vote and will now be presented to the floor. If the bill passes, it will serve, in pertinent part, to define bitcoin and “virtual currency” (“VC”) as “monetary instruments” within the meaning of the state’s money laundering statute; in the same vein, bitcoin will be defined as a “medium of exchange in electronic or digital format that is not a coin or currency of the United States or any other country.” Continue Reading Florida Lawmakers Seek to Bring Virtual Currency into the Fold

It is a potential crime to conduct a business that exchanges virtual currency and fail to register with the Financial Crimes Enforcement Network (“FinCEN“), even if the State in which one operates does not impose a similar licensing requirement. A federal district court in Louisiana has reaffirmed this principle in United States v. Lord, in which the defendants unsuccessfully sought to withdraw their pleas of guilty to offenses based on a failure to register with FinCEN.

Law and Justice

The defendants are father and son. According to the court opinion, in 2013, they began to operate a bitcoin business through a website called localbitcoins.com, which advertised the services of other bitcoin exchangers. The defendants’ clients provided cash, credit card payments and wire transfers to the defendants to purchase bitcoins from a third-party online bitcoin broker on their client’s behalf, in exchange for commissions charged by the defendants. In the Spring of 2014, the third-party bitcoin broker warned the defendants that they were required to register with FinCEN because they were acting as virtual currency exchangers. Although the defendants allegedly misrepresented to the third-party online broker that they already had registered with FinCEN, the defendants did not actually register until November 2014. By that time, however, they already had exchanged more than $2.5 million worth of virtual currency. This registration delay was the basis of the charges relating to the defendants’ virtual currency business. Continue Reading Failure to Register with FINCEN Sustains Guilty Pleas by Virtual Currency Exchangers

This week, we have the opportunity to lead a discussion with real estate industry professionals about AML and CFT trends at the Real Estate Services Providers Council, Inc. (RESPRO®) Annual Conference in Las Vegas. We have written several times in this blog about the real estate industry, including the 2017 extension of the GTOs for title insurance companies, other recent FinCEN activities, and the FATF’s conclusions regarding real estate in their 2016 Mutual Evaluation Report.

We are very pleased that Anne Marie Minogue of Navigant will be joining us on the panel. The real estate industry operates differently in different states and efforts to enhance AML and CFT supervision and enforcement will need to reflect this complexity. RESPRO members include a broad range of industry participants that will be affected by further actions by FinCEN so we are looking forward to the discussion.Beautiful Swimming Pool at an Estate Home

Department_of_Justice_Office_of_the_Inspector_General_seal_svgIn this post, we consider the Department of Justice’s (DOJ) Office of the Inspector General report (OIG Report), released on March 29, 2017, evaluating the DOJ’s oversight of its cash seizure and forfeiture operations.  This post is a companion to yesterday’s piece addressing the Treasury Inspector General for Tax Administration (TIGTA)’s recent report on IRS civil forfeiture for structuring violations.  Read in tandem, the OIG and TIGTA Reports suggest that many forfeitures occur without conclusive information about the details of the potential underlying crime, or even whether an underlying crime was involved at all.  The OIG Report concludes that more robust investigations and data collection on forfeitures would both allow DOJ monitor the effectiveness of its forfeiture efforts and increase public confidence in the forfeiture process.  Improved investigations and data collection also may lead to greater enforcement opportunities by tying forfeitures to ongoing investigations or initiating new enforcement actions based on findings in forfeiture investigations.

This OIG Report is the latest in a series of recent OIG evaluations of DOJ forfeiture initiatives which respond, at least in part, to civil liberties concerns raised by forfeiture reform advocates. (See OIG’s January 2015 report on so-called “cold” consent encounters at mass transit facilities, and its September 2012 investigation of forfeiture enforcement by a local Florida police department).  Both of those investigations concluded that more data analysis was needed to ensure that forfeiture operations were serving legitimate law enforcement interests.

The most recent report continues with the same theme, finding that the DOJ and its investigative components do not collect or use sufficient data to properly oversee seizure operations, or to determine whether those operations relate to or benefit criminal investigations. The OIG report focuses on three main topics:  (1) the lack of data assessing the relationship between seizure and forfeiture activities and investigative outcomes; (2) in the absence of such data, the OIG itself sampled 100 DEA cash seizures that had characteristics OIG believed made them “particularly susceptible to civil liberties concerns”; and (3) the DOJ’s relationship to state and local law enforcement, through both training and equitable sharing arrangements.  This post addresses topics (1) and (2).  As we have previously written, equitable sharing arrangements raise their own issues of balancing individual property rights against law enforcement objectives, which are conceptually distinct from the issues addressed here. Continue Reading Civil Forfeiture Under Fire – Part II

Forfeiture actions by Internal Revenue Service Criminal Investigation (IRS CI) based on alleged structuring activity have come under fire, yet again. Specifically, the Treasury Inspector General for Tax Administration (TIGTA) issued on March 30, 2017 a detailed report (Report) which evaluates IRS CI’s use of seizures for property owners suspected of structuring financial transactions. The Report sets forth detailed criticisms of past practices, as well as nine pointed recommendations for future forfeiture actions, which received a mixed response from IRS CI. This report was followed very shortly by the bipartisan re-introduction on April 3, 2017 of the “Restraining Excessive Seizure of Property through the Exploitation of Civil Asset Forfeiture Tools Act,” or RESPECT Act, which seeks to limit the ability of the IRS to conduct civil forfeitures based on structuring activity without underlying criminal activity.Suitcase full of money

We previously have discussed the growing resistance to IRS forfeiture actions based on the structuring of “legal source” funds, and the initial introduction of the RESPECT Act. In this two-part blog entry, we discuss in detail immediately below the new TIGTA Report and the mixed reaction to it by IRS CI.

However, it is not just IRS CI that is undergoing criticism. We will follow up tomorrow with a related post on the recent report by the Office of the Inspector General for the Department of Justice (DOJ). The DOJ report provides some similar critiques of the entire landscape of federal forfeiture, and makes additional recommendations on asset seizure and forfeiture in general.

These two Inspector General reports set forth some common criticisms of forfeiture enforcement. They also can be interpreted as suggesting that law enforcement agents could minimize some of the criticisms of civil forfeiture by reducing the total amount of forfeiture cases undertaken, while simultaneously increasing the amount of time and effort spent on investigating the remaining cases which are pursued. This is because the reports suggest that additional investigation – which often seems to be scant – may produce in many cases facts supporting forfeiture that could satisfy even some critics of civil forfeiture.
Continue Reading Civil Forfeiture Enforcement Under Fire – Part I

The Supreme Court granted certiorari on April 3 to decide whether Jordan-based Arab Bank may be liable for claims including allegations that its New YorkDetail view of the United States Supreme Court branch processed transactions for known terrorists. While the central issue before the Court will be the scope of the Alien Tort Statute (“ATS”) – namely whether it permits corporate liability for violations of international law – Jesner v. Arab Bank also illustrates how alleged AML/BSA failures can lead to yet another avenue for secondary legal liability for financial institutions, as we previously have noted in other contexts. Depending on the outcome of the Court’s opinion in Jesner, such U.S. exposures may extend to foreign financial institutions even when the alleged conduct occurs primarily abroad. Continue Reading Weighing Corporate Liability under the Alien Tort Statute: What it Means for AML/CFT Controls

We are pleased to announce that Ballard Spahr has expanded the scope of our sister blog, the award-winning CFPB Monitor.  This expanded scope reflects that we strive to deliver the breaking news and insightful analysis you need to stay agile and informed in all aspects of the world of financial regulation and enforcement.

To keep you informed of the latest developments in the rapidly evolving regulation of consumer financial services, our new Consumer Finance Monitor – spearheaded by our partner Alan Kaplinsky and our many other colleagues at Ballard Spahr’s Consumer Financial Services group – includes the firm’s flagship CFPB Monitor, which continues to provide unparalleled coverage of the Consumer Financial Protection Bureau. The Consumer Finance Monitor also features the State CFS Monitor to cover important state agency and attorney general developments, and the Federal CFS Monitor to cover important developments in consumer financial services at the FTC, the FCC, the DOJ, and the federal bank regulatory agencies (OCC, FDIC, FRB, and NCUA).

Please check out this new expanded blog, which is an excellent counterpart to our own focus on money laundering.

IED Bomb still lifeOn March 24, 2017, the U.S. Department of Justice unsealed an indictment charging Kassim Tajideen, an alleged prominent financial supporter of the Hizballah terror organization, with evading U.S. sanctions and conspiring to commit money laundering.  Tajideen, of Beirut, Lebanon, was arrested in Morocco earlier this month and has made his initial appearance in federal court in Washington, D.C.

According to the government, Tajideen, through his multi-billion dollar network of businesses based in Lebanon and Africa, contributed tens of millions of dollars to Hizballah. For this reason, in May 2009, the Department of Treasury’s Office of Foreign Assets Control (“OFAC”) designated Tajidden as a Specially Designated Global Terrorist (“SDGT”).  This designation makes it illegal for U.S. companies to do business with Tajideen or any entity that he controls.  More broadly, it is illegal for U.S. companies to transact business with any entities or individuals on OFAC’s blacklists.

The indictment charges Tajideen with one count of conspiracy to evade U.S. sanctions, specifically the International Emergency Economic Powers Act (“IEEPA”) and the Global Terrorism Sanctions Regulations, by transacting business with three U.S. businesses, referred to only as Business A, Business B and Business C, and by concealing from OFAC that he was benefitting from these transactions. Tajideen is also charged with seven counts of unlawful transactions with a SDGT, and one count of conspiracy to commit money laundering.

According to the indictment, Tajideen heads a large-scale commodity distribution business based primarily in Lebanon, the United Arab Emirates and Angola, but which operates throughout the world, including in the U.S. The business utilized what the government says was “a web of vertically integrated companies, partnerships and trade names.” The indictment further alleges that Tajideen and others engaged in a scheme to do business with U.S. companies while concealing Tajideen’s involvement.  As part of that scheme, between approximately July 2013 and the present, Tajideen, his employee, codefendant Imad Hassoun, and other unnamed co-conspirators illegally caused at least 47 wire transfers totaling over $27 million to be sent to entities in the U.S. for the purchase of frozen poultry and other items.  These payments caused the U.S. entities to illegally ship goods from the U.S. without obtaining the proper licenses from the U.S. Department of the Treasury. The count of conspiracy to commit money laundering, in violation of 18 U.S.C. § 1956(h), charges that Tajideen and others conspired to both promote and conceal the conspirators’ illegal business transactions with U.S. persons through numerous wire transfers from bank accounts held by Tajideen’s companies in the United Arab Emirates to bank accounts held within the U.S. in order to pay for transactions involving Businesses A, B and C.

It has been reported that the investigation is continuing. Specifically, the government wants to determine whether Businesses A, B or C knowingly did business with Tajideen after he was designated a SDGT. Tajideen is alleged to have restructured his business empire after the designation and to have created new trade names in order to evade the sanctions and continue doing business with U.S. companies.  But Tajideen’s alleged deception may not save Businesses A, B and C from the government’s crosshairs.  Companies are responsible for conducting due diligence to determine whether entities and individuals with whom they do business – including middlemen, corporate shells and newly formed firms – are linked to individuals or entities on OFAC’s blacklists.  So while this indictment shows that the U.S. is taking aggressive action against Hizballah, it also underscores the need for U.S. companies to have robust export control compliance programs so that they can ensure they are not doing business with terrorists.

FDICIn his remarks during last week’s launch of Case Western Reserve School of Law’s Financial Integrity Institute, FDIC Chairman Martin J. Gruenberg spoke on the historical context of today’s BSA/AML regulatory framework and the FDIC’s role in promoting and maintaining financial integrity.  The Financial Integrity Institute describes its mission as seeking “to advance financial integrity globally by conducting and promoting at the highest standards research, education and professional excellence in anti-money laundering, anti-corruption, targeted sanctions and countering the financing of terrorism and international tax evasion policies and practices.”

Chairman Gruenberg recounted the legislative history of money laundering and terrorist financing laws and reminded us that the BSA was originally developed to address the lack of data needed by law enforcement to prosecute financial crimes. The regulatory framework has evolved over time in response to continual technological advancements and the increasing volume and sophistication of financial crime being perpetrated. “[W]hat began as currency transaction reporting requirements to identify citizens evading tax payments,” he said, “has evolved into required BSA/AML compliance programs, suspicious activity monitoring, and new reporting requirements to identify money laundering and terrorist financing, among other financial crimes.” The Chairman also observed that anti-money laundering efforts continue to take on an increasingly international aspect, and that evolving technologies constitute a “double-edged sword” because they can represent new means to either commit, or detect and prevent, financial crime.

In his speech, the Chairman also touched on the FDIC’s supervisory program. He stated that the FDIC evaluates not only an institution’s compliance with the BSA but also whether an institution has established a “culture of compliance.” He further remarked that the BSA/AML compliance program failures seen by the FDIC “often reflect a failure on the part of an institution’s directors or senior management to establish a tone of compliance that permeates the institution.”

We previously have blogged about the regulatory focus on the importance of cultivating a culture of robust BSA/AML compliance within financial institutions. Chairman Gruenberg’s remarks suggest that this focus is not likely to diminish in the near future. As such, it is prudent for financial institutions to keep efforts to develop a culture of compliance top of mind. In particular, the Chairman noted that the FDIC looks for whether directors demonstrate strong corporate governance and have a general understanding of the BSA/AML regulations and the risks posed to their institution, and whether senior management and employees understand the importance of BSA/AML compliance.

One of the many potential consequences of a criminal conviction is that the government may seize assets held by the defendant’s family to satisfy a criminal forfeiture order against the defendant himself. In United States v. Daugerdas, the Southern District of New York held that the wife of a lawyer convicted of a tax shelter fraud scheme lacked standing to raise questions about the underlying forfeiture of $32 million held in accounts which she controlled, and that she also was incapable of showing that any of her legal interests in the funds were superior to the government’s interests in forfeiture, which vested earlier when her husband began his scheme. The Daugerdas opinion illustrates the potential futility of transferring the proceeds of illegal activity to third parties. When it comes to criminal forfeiture, the U.S. is a special creditor.

Broken piggy bank

The order of criminal forfeiture at issue arose out of a well-publicized and significant tax shelter prosecution involving various tax professionals, including lawyers and accountants. Although criminal forfeiture cannot rest upon a substantive criminal tax violation under Title 26 (the Internal Revenue Code, or IRC), the government sometimes maneuvers around that statutory rule by charging what are really violations of the IRC as mail or wire fraud under Title 18. There is a DOJ policy which generally prohibits the use of the mail or wire fraud statutes to turn traditional tax violations into mail fraud, wire fraud or money laundering charges and/or forfeiture counts; this issue represents a complicated topic all by itself. Suffice it to say for the purposes of this discussion that the $32 million forfeiture order in Daugerdas rested on mail fraud convictions. The petitioner’s husband, former tax attorney Paul Daugerdas, was convicted and jailed for running an alleged tax fraud scheme from about 1994 to 2004, which produced at least $180 million in illegal proceeds. Approximately $32 million of these same proceeds – the subject of the contested forfeiture – were deposited between February 2000 and July 2009 into accounts held in the petitioner’s own name, a trust controlled by the petitioner, or a corporation the petitioner owned because her husband had assigned the corporation to her in 2002. Continue Reading Friends and Family and Criminal Forfeiture