As 2017 winds down, we are taking a look back at the first year of Money Laundering Watch.

We want to thank our many readers around the world who have made Money Laundering Watch such a success since we launched it less than a year ago. The feedback we receive from financial industry professionals, compliance officers, in-house and external lawyers, AML/BSA consultants, government personnel, journalists, and others interested in this field is invaluable, and we hope you will continue to share your perspectives with us.  We pride ourselves on providing in-depth discussions of the important developments in this ever-evolving area and their potential implications.

2017 has been a busy year in the world of financial corruption. We are highlighting 12 of our most-read blog posts, which address many of the key issues we’ve examined this year.

We also would like to thank the other platforms that host our blog: Digital Currency & Ledger Defense Coalition, Money Laundering Bulletin, and Federal Tax Crimes.

We look forward to continuing to keep you informed in 2018.  If you would like to subscribe to Money Laundering Watch, please click here.

We are very pleased to be presenting on the topic of SEC enforcement against broker-dealers and mutual funds relating to alleged underlying Anti-Money Laundering and Bank Secrecy Act violations, and associated private class action lawsuits, at the upcoming meeting of the Securities Regulation Committee of the New York State Bar Association on this Wednesday, December 13, 2017.  This is a topic of increasing importance on which we have blogged repeatedly (see here, here, here and here); FinCEN also has proposed similar AML regulations for investment advisors.  We also will discuss the hot topic of potential SEC enforcement involving digital currency and Initial Coin Offerings, or ICOs, and the general role of AML in the digital currency industry. The program will begin at 7:00 p.m. and is hosted at the New York City offices of Skadden, Arps, Slate, Meagher & Flom LLP.  Thanks again to the Committee for this invitation; we look forward to it.

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

IRS Will Obtain Identifying Information Regarding Clients Who Conducted Any Transaction Equal to $20,000 or More

Last week, a federal magistrate judge in the Northern District of California granted in part and denied in part a motion by the IRS to enforce a “John Doe” summons served on Coinbase, Inc., which operates a virtual currency wallet and exchange business headquartered in San Francisco. As we have blogged, the court granted last year the IRS’s application to serve the summons on Coinbase, which then resisted and moved to quash. The recent ruling paves the way for potential criminal or civil tax investigations involving Coinbase customers, as well as potential money laundering investigations.  The ruling also indicates that the IRS might be able to seek more information from Coinbase about specific individuals as its investigation progresses.

Needless to say, the semi- or pseudo-anonymity offered by virtual currency – traits which historically have made virtual currency attractive to some of its users – are the same traits which have made the IRS and other law enforcement agencies and regulators intensely interested in the use of virtual currency. Although the use of virtual currency generally may cloak the user and create practical problems for investigators, the Coinbase action demonstrates that virtual currency is not truly anonymous in the face of a focused law enforcement inquiry. Continue Reading Court Enforces — Partially — IRS “John Doe” Summons Served on Virtual Currency Exchanger

In its “Risk Outlook, Autumn Update” (“Update”) released last week, the Solicitor Regulation Authority (“SRA”), a regulator of solicitors and law firms in England and Wales, found that although the legal sector remains at “high risk of exploitation for money laundering,” reports made by legal practitioners to law enforcement of suspicious, money laundering-related activities dropped by nearly 10% last year. The Update then explores the AML risks associated with legal services.See the source image

As we will discuss below, many of the issues addressed by the SRA Update resonate with similar Anti-Money Laundering (“AML”) issues which have been brewing recently in the United States — such as the issues of beneficial ownership, the potential use of real estate in money laundering, and lawyers as “gate keepers.”  Of course, however, the very notion of legal practitioners reporting their clients to law enforcement for suspicious activity — a practice which represents a given to the SRA Update in light of U.K. law reporting requirements — remains deeply antithetical to basic notions of client confidentiality and loyalty held by the U.S. legal profession and courts.  We will discuss here this unique convergence of (i) very similar AML issues and concerns confronting the U.K. and the U.S., and (ii) drastically different approaches — at least to date — as to the appropriate duty of lawyers to report the conduct of their own clients to the government. Continue Reading U.K. Regulator Critiques Legal Industry AML Compliance

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

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.