On November 9, 2017, the Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) amended the Cuban Assets Control Regulations, 31 C.F.R. part 515 (the “CACR”), with the stated intent of channeling economic activities away from the Cuban military, intelligence, and security services, while maintaining opportunities for Americans to engage in authorized travel to Cuba and support the private, small business sector in Cuba. These amendments implement the National Security Presidential Memorandum (“NSPM”), “Strengthening the Policy of the United States Toward Cuba,” which was signed on June 16, 2017.  While the changes may limit certain new business opportunities in Cuba for Americans, they also provide clarity regarding with whom Americans may not do business, and should be considered accordingly by institutions in regards to tailoring their Anti-Money Laundering (“AML”) and OFAC-related due diligence and compliance procedures. Continue Reading OFAC Increases Clarity Regarding Financial Transactions with Cuba

The U.S. Department of Treasury has issued a press release naming Kenneth A. Blanco as the incoming Director of the Financial Crimes Enforcement Network, or FinCEN.  Mr. Blanco, who currently serves as Acting Assistant Attorney General of the Criminal Division at the Department of Justice, is expected to transition to his new position within the month.  He will replace Jamal El-Hindi, who has been serg as the Acting Director of FinCEN.  Stressing in part his work involving cross-border issues, the press release provides the following bio for Mr. Blanco:

Mr. Blanco joins Treasury after serving as the Acting Assistant Attorney General of the Criminal Division at the United States Department of Justice. He was appointed to the position of Deputy Assistant Attorney General, Criminal Division in April 2008. During his tenure with the Criminal Division, Mr. Blanco has overseen a number of its sections, including the Money Laundering and Asset Recovery Section (formerly the Asset Forfeiture and Money Laundering Section), the Narcotic and Dangerous Drug Section, the Organized Crime and Gang Section, and the Child Exploitation Section.

Mr. Blanco has supervised many of the Criminal Division’s most significant national and international investigations into illicit finance, money laundering, Bank Secrecy Act, and sanctions violations, including investigations of global financial institutions and money services businesses. Much of his work is in the international banking and financial services area, working and collaborating with international partners in countries such as Mexico, Colombia and Panama, among others.

Mr. Blanco joined the Department of Justice almost two decades ago as an Assistant United States Attorney in the Southern District of Florida. He later served as the Deputy Chief of Narcotics/Chief of the High Intensity Drug Trafficking Area, Acting Chief of Narcotics, and Deputy Chief of the Major Crimes Section in that Office. Mr. Blanco has also served as General Counsel to the 94 United States Attorney’s Offices and the Executive Office of United States Attorneys and as Chief of the Criminal Division’s Narcotic and Dangerous Drug Section.
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FinCEN recentlty announced entry of a $2 million assessment against Lone Star National Bank, a private bank operating out of Texas, for the bank’s allegedly willful violations of the Bank Secrecy Act (“BSA”) and inadequate Anti-Money Laundering (“AML”) monitoring programs.  The primary violations relate to Lone Star’s alleged failure to comply with due diligence requirements imposed by Section 312 of the USA PATRIOT Act in establishing and conducting its correspondent banking relationship with a Mexican bank.  As a result of Lone Star’s insufficient due diligence and AML program, the Mexican bank was “allowed to move hundreds of millions of U.S. dollars in suspicious cash shipments through the U.S. financial system in less than two years.”  The FinCEN’s announcement warns that this “action underscores the dangers that institutions face when taking on international correspondence activities without properly equipping themselves” to manage the enhanced obligations that arise with such relationships.

This new FinCEN assessment underscores the continued regulatory interest in the AML risks presented by correspondent banking relationships. We therefore first will provide a brief overview of correspondent banking relationships and the enhanced regulatory attention often paid to them. Armed with this context, we then will analyze the findings and lessons learned from the Lone Star assessment, including the value touted by FinCEN of Lone Star’s efforts to cooperate with its own investigation. Further, this new assessment suggests that the U.S. government does not always present a consistent voice regarding correspondent banking relationships: although the U.S. Treasury has tried to encourage financial institutions in general to not “de-risk” and thereby terminate correspondent banking relationships, we see that enforcement agencies continue to penalize institutions in individual cases for not mitigating sufficiently the risks of correspondent banking. Continue Reading FinCEN Fines Texas Bank $2M for Alleged Failure to Vet and Monitor Mexican Correspondent Banking Relationship – But Touts Bank’s Cooperation

We are pleased to announce that Ballard Spahr has created a Virtual Currency Team.  Our website is here; our team brochure is here.

Virtual currency is poised to revolutionize the way companies and people conduct business. But the development of new products and services is outpacing the regulatory and enforcement landscape, creating challenges for those looking to tap into this dynamic and complex new market sector.

Our team brings together lawyers focused on legal areas important to virtual currency providers and users.  This work involves of course Anti-Money Laundering considerations, the Bank Secrecy Act, and related state laws and licenses, as well as white collar defense and investigations.  However, virtual currency presents a host of many other potential legal issues, beyond just the subject matter of this blog. Our team has been constituted accordingly.  It includes lawyers skilled in securities regulation and enforcement, cyber security and data privacy, tax, and intellectual property. The team can help clients launch initial coin offerings; register when necessary with the SEC, FinCEN and under state law; develop and implement new products; comply with tax obligations; protect data; and generally navigate the complicated maze of government regulation and enforcement. Together, we hope to provide a comprehensive legal resource to digital currency market participants.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch.

PANA Issues Recommendations to European Parliament: Tougher Enforcement, Greater Transparency, Improved Information Sharing and Prohibitions Against Outsourcing of Customer Due Diligence

In the wake of the Panama Papers, the European Parliament (“EP”) formed PANA, a Committee of Inquiry into Money Laundering, Tax Avoidance, and Tax Evasion. We previously wrote about PANA in May when it was examining the role of lawyers in money laundering and tax evasion schemes. After opening their October 19 meeting with a moment of silence to honor the life of Maltese investigative journalist Daphne Coruana Galizia, who recently was killed by a car bomb, PANA approved a draft report and recommendations for review by the EP. The findings and recommendations range from reporting standardization to outsourcing to illicit real estate transactions to attorney-client privilege.

European parliament in Brussels, Belgium.

A few themes emerged from the PANA report:

  • the European Union (“EU”) has strong law, but lacks vigorous enforcement;
  • the EU’s many regulators are stymied by a severe lack of communication, both within nations and between countries;
  • beneficial owners (“BOs”) are mostly unknown because regulated entities are not fulfilling their reporting obligations and the BO register is not robust, accessible, or standardized;
  • intermediaries, like banks, lawyers, accountants, wealth managers, and other financial institutions, are not living up to their obligations because they are engaging in “creative compliance” and leaving compliance responsibility to third parties.

Based on these findings, PANA recommends:

  • uniform definitions and punishments for money laundering and tax-related infractions,
  • “automatic exchange of information,” reciprocity, and “Common Reporting Standards” between regulators to facilitate better information sharing,
  • the creation of a “publically accessible,” standardized BO register that includes the ultimate beneficial owner (“UBO”),
  • the EP pass legislation to “make it illegal to outsource [customer due diligence (“CDD”)] procedures to third parties,”
  • adoption of stronger forfeiture laws that allow cross-border confiscation of illegally obtained assets,
  • stronger sanctions against banks and other intermediaries that “are knowingly, willfully, and systematically implicated in illegal tax schemes,”
  • lawyers should no longer be able to hide behind the attorney-client privilege to escape reporting requirements, like suspicious transaction reports (“STRs”),
  • countries devote more resources to fighting money laundering and tax evasion,
  • the EP vest more oversight powers in PANA.

Continue Reading Money Laundering Watchdog Criticizes Lax AML Enforcement and “Creative Compliance” in Wake of Panama Papers

Third in a Three-Part Series of Blog Posts

Many Keys to AML Information Sharing

This blog focuses on suggested improvements to information sharing between financial institutions, and between financial institutions and governments, to better combat money laundering and terrorist financing. As we recently blogged, the Royal United Services Institute (“RUSI”) for Defence and Security Studies — a U.K. think tank – has released a study:  The Role of Financial Information-Sharing Partnerships in the Disruption of Crime (the “Study”).  The Study focuses on international efforts — including efforts by the United States — in reporting suspicious transactions revealing criminal activity such as money laundering and terrorist financing.  The Study critiques current approaches to Anti-Money Laundering (“AML”) reporting and suggests improvements, primarily in the form of enhanced information sharing among financial institutions and governments.

In our first blog post in this series, we described some of the criticisms set forth by the Study regarding the general effectiveness of current suspicious activity reporting.  These critiques related to an ever-increasing amount of SAR filings, coupled in part with a lack a feedback by governments to the filing institutions regarding what sort of information was considered by law enforcement to be actually useful.  In our second post, we discussed the current landscape of AML information sharing in the United States, which is governed by Section 314 of the Patriot Act, and is an important component of many financial institutions’ ability to fulfill successfully their AML obligations.  This third and final blog post pertaining to the Study examines its findings and proposals for developing effective public–private financial information sharing partnerships (“FISPs”) in order to better detect, prevent, and combat money laundering and terrorist financing.  Observing that modern financial crime “operates in real time, is most often international in scale and can be highly sophisticated ad adaptive to avoid detection,” the Study generally posits that AML systems ideally should include real-time and cross-border information sharing. Continue Reading Combatting Money Laundering and Terrorist Financing Through Enhanced AML Information Sharing

Second in a Three-Part Series of Blog Posts

As we recently blogged, the Royal United Services Institute (“RUSI”) for Defence and Security Studies — a U.K. think tank – has released a study:  The Role of Financial Information-Sharing Partnerships in the Disruption of Crime (the “Study”).  The Study focuses on international efforts — including efforts by the United States — regarding the reporting of suspicious transactions revealing criminal activity such as money laundering and terrorist financing.  The Study critiques current approaches to Anti-Money Laundering (“AML”) reporting, and suggests improvements, primarily in the form of enhanced information sharing among financial institutions and governments.

In our first blog post in this series, we described some of the criticisms set forth by the Study regarding the general effectiveness of suspicious activity reporting, which the Study described as often presenting little or no “operational value to active law enforcement investigations.” In this second blog post pertaining to the Study, we will discuss the current landscape of AML information sharing in the United States — which is governed by Section 314 of the Patriot Act, and which is an important component of many financial institutions’ ability to fulfill successfully their AML obligations. In the third and final blog post pertaining to the Study, we will circle back to the Study and examine its findings and proposals for an enhanced process of information sharing by financial institutions and governments in order to better fight money laundering and terrorism. Continue Reading AML Information Sharing in the U.S. – Section 314 of the Patriot Act

U.K. Think Tank Report Criticizes International AML Reporting Regimes

First in a Three-Part Series of Blog Posts

The Royal United Services Institute (“RUSI”) for Defence and Security Studies — a U.K. think tank – has released a study:  The Role of Financial Information-Sharing Partnerships in the Disruption of Crime (the “Study”).  The Study focuses on international efforts — including efforts by the United States — regarding the reporting of suspicious transactions, money laundering, and terrorist financing.  The Study is a critique of current approaches to AML reporting.

In this first blog post on the Study, we will describe some of the criticisms set forth by the Study regarding the general effectiveness of suspicious activity reporting. Some of these criticisms will ring true with U.S. financial institutions, and echo in part criticisms previously raised by a detailed paper published by The Clearing House, a banking association and payments company. That paper, titled A New Paradigm: Redesigning the U.S. AML/CFT Framework to Protect National Security and Aid Law Enforcement (“The New Paradigm”), analyzes the effectiveness of the current AML and Combatting the Financing of Terrorism (CFT) regime in the U.S., identifies problems with that regime, and proposes reforms.  As we previously have blogged, The New Paradigm has argued that the regime for filing SARs is outdated, that “the combined data set [from filed SARs] has massive amounts of noise and little information of use to law enforcement,” and that “the SAR database includes no feedback loop [and] . . . . there is no mechanism for law enforcement to provide feedback on whether a given SAR produced a lead or was never utilized.”  These same criticisms are repeated in the Study, which looked at AML systems in the U.S, the U.K, Hong Kong, Singapore, Australia, and Canada.  Although suspicious activity reporting is generally considered to be the engine which drives AML and money laundering enforcement by the government, the Study asserts: “Interviews with past and present {Financial Intelligence Units] heads as part of this project consistently raised figures of between 80% and 90% of [such reporting] being of no operational value to active law enforcement investigations.” Continue Reading Suspicious Activity Reports Rarely Provide “Operational Value” to Law Enforcement Investigations