The U.S. Department of Justice (“DOJ”) continues to pursue Venezuelan nationals through high-dollar and high-profile money laundering and foreign bribery charges. The latest development in this ongoing saga is the recent sentencing of the former national treasurer of Venezuela, Alejandro Andrade Cedeno (“Andrade”), by the Southern District of Florida to a decade in prison, after Andrade pleaded guilty last year to a single-count information charging him with conspiracy to commit money laundering (specifically, a conspiracy to violation 18 U.S.C. § 1957, the so-called “spending” money laundering provision, which requires transactions involving over $10,000 in criminal proceeds, but no specific intent) in an alleged sprawling bribery and money laundering scheme. His plea agreement (the “Plea”) was one of several connected proceedings unsealed on November 20, most notable of which is the grand jury indictment (the “Indictment”) of fugitive Raúl Gorrín Belisario (“Gorrín”), the owner of Venezuelan cable news network Globovision, erstwhile resident of Miami, and alleged architect of the money laundering conspiracy.

Although he retired to Florida after having served as the head of the Venezuelan treasury, Andrade did not begin his career in the world of high finance. Rather, his climb to power and wealth began when he used to serve as the bodyguard for the President of Venezuela, Hugo Chavez.

As we will discuss, there is more to come. Aside from telling a lurid tale of corruption rewarded through high-end bribes involving aircraft, real estate (widely acknowledged as a major vehicle for laundering) and thoroughbred horses, Andrade’s plea agreement contains cooperation language, and his counsel has stated publically that Andrade has been cooperating with the DOJ for some time. Notably, Andrade was charged only with a single count of Section 1957, which has a statutory maximum sentence of 10 years – exactly the sentence imposed on Andrade, whose advisory Federal Sentencing Guidelines range was presumably much, much higher. It is fair to assume that Andrade will be pursuing a second sentencing hearing at which his sentence could be reduced based on his cooperation with the government.

Andrade’s case is part of a steady stream of money laundering and bribery charges recently brought by the DOJ which relate to Venezuela, which is reeling from massive inflation and a near-existential economic crisis that is inflicting widespread suffering. His case also represents another instance of the DOJ’s increasing tactic of using the money laundering statutes to charge foreign officials who cannot be charged directly under the Foreign Corrupt Practices Act (“FCPA”). Continue Reading Another Sprawling Money Laundering and Bribery Scheme Involving Venezuela: Currency Exchange Rate Manipulation, Rewarded By Aircraft, Real Estate, and Thoroughbred Horses

We are pleased to offer the latest episode in Ballard Spahr’s Consumer Financial Monitor Podcast series — a weekly podcast focusing on the consumer finance issues that matter most, from new product development and emerging technologies to regulatory compliance and enforcement and the ramifications of private litigation.  Our podcast discusses the conduct for which financial institutions have been faulted in recent Anti-Money Laundering (“AML”) enforcement actions, flags other AML-related missteps that can trigger regulatory scrutiny, and offers practical tips for avoiding regulatory criticism and reducing enforcement risk. This podcast follows up on two related blog posts, in which we provided some practical tips for financial institutions to increase the chances that their AML programs will withstand regulators’ scrutiny, and then discussed the consequences of potentially failing to heed these practical tips in a specific case: the New York Department of Financial Services’ (DFS) recent enforcement action against Mashreqbank.

We hope that you enjoy the podcast, moderated by our partner Alan Kaplinksy, and find it useful.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. To learn more about Ballard Spahr’s Anti-Money Laundering Team, please click here.  To visit Ballard Spahr’s award-winning Consumer Financial Monitor blog, please click here.

OCC Presages Regulators’ Joint Statement on Banks Using Technological Innovation to Comply with BSA/AML Obligations

Second Post in a Two-Part Series

In our first post in this series, we described how the U.S. Senate Committee on Banking, Housing, and Urban Affairs (the “Banking Committee”) met in open session late last week to conduct a hearing on “Combating Money Laundering and Other Forms of Illicit Finance: Regulator and Law Enforcement Perspectives on Reform.” The Banking Committee heard the testimony of, and questioned, representatives from the FinCEN, the OCC, and the FBI. The partial backdrop of this hearing is that Congress is considering a draft bill, the Counter Terrorism and Illicit Finance Act (“CTIFA”), which proposes the most substantial overhaul to the Bank Secrecy Act (“BSA”) since the PATRIOT Act.   As we have noted, three individuals testified at this hearing:

  • Kenneth A. Blanco, Director of FinCEN (written remarks here);
  • Steven D’Antuono, Section Chief of the FBI’s Financial Crimes Section (written remarks here); and
  • Grovetta Gardineer, Senior Deputy Comptroller for Compliance and Community Affairs of the OCC (written remarks here).

In our first post, we discussed some of the tensions which emerged during the hearing between the OCC, which emphasized attempting to ease BSA regulatory burdens, particularly for small- to medium-sized community banks, and FinCEN and the FBI, which stressed the value of BSA filings to law enforcement. Today, we discuss the some of the less contentious – although still critical – issues addressed during the hearing, which covered much of the current AML landscape:

  • exploration by financial institutions of technological innovation, including artificial intelligence, in order to comply more efficiently with their BSA/AML obligations;
  • identification of the beneficial owners of legal entities; and
  • the role of real estate in money laundering schemes.

Continue Reading More on AML Reform: Artificial Intelligence, Beneficial Ownership and Real Estate

Regulators Spar Over BSA Reporting Thresholds and Regulatory Review for FinCEN

First Post in a Two-Part Series

Late last week, the U.S. Senate Committee on Banking, Housing, and Urban Affairs (the “Banking Committee”) met in open session to conduct a hearing on “Combating Money Laundering and Other Forms of Illicit Finance: Regulator and Law Enforcement Perspectives on Reform.” The Banking Committee heard the testimony of, and questioned, representatives from FinCEN, the OCC, and the FBI. This was the fourth hearing held in 2018 by the Banking Committee on the state of the Bank Secrecy Act (“BSA”) framework and its effective implementation by regulators and law enforcement. The partial backdrop for this hearing is that Congress is considering a draft bill, the Counter Terrorism and Illicit Finance Act (“CTIFA”), which proposes the most substantial overhaul to the BSA since the PATRIOT Act, and which contains provisions regarding many of the same issues discussed during the hearing.

In this hearing, we heard from three individuals:

  • Kenneth A. Blanco, Director of FinCEN (written remarks here);
  • Steven D’Antuono, Section Chief of the FBI’s Financial Crimes Section (written remarks here); and
  • Grovetta Gardineer, Senior Deputy Comptroller for Compliance and Community Affairs of the OCC (written remarks here).

In this post, we will discuss the issues which appeared to generate the most sparks between the OCC—which emphasized attempting to ease BSA regulatory burdens, particularly for small- to medium-sized community banks—and FinCEN and the FBI, which stressed the value of BSA filings to law enforcement. In our next post, we will discuss some of the less contentious (although still critical) issues addressed at the hearing, which broadly canvassed many of the most pressing BSA/AML issues currently facing financial institutions and the government.  These issues are: (i) the exploration by financial institutions of technological innovation, including artificial intelligence, in order to comply more efficiently with their BSA/AML obligations; (ii) the identification of the beneficial owners of legal entities; and (iii) the role of real estate in money laundering schemes.

The tension during the hearing between FinCEN and OCC at times was palpable, and the divides in partisan thinking on the direction of certain aspects of AML reform were apparent. Although there seemed to be consensus on the importance of the beneficial ownership rules and other issues, senators and regulators alike disagreed about increasing the $5,000 and $10,000 respective reporting threshold for the filing of Suspicious Activity Reports (“SARs”) and Currency Transaction Reports (“CTRs”).

Continue Reading FinCEN, OCC and FBI Offer Diverging Views on AML Reform in U.S. Senate Testimony

Ballard Spahr is very pleased to host on December 17, 2018 at noon in our Philadelphia office a CLE program for the gaming industry and associated counsel to participate in a panel discussion with speakers from the Internal Revenue Service (IRS) on the latest industry trends in BSA/AML compliance and examination.

Please join us in person to hear directly from the government about related gaming enforcement actions and lessons learned, and to discuss the ongoing importance of Suspicious Activity Reports, Currency Transaction Reports, and “Know Your Customer” due diligence.  I will have the pleasure of moderating a select panel from IRS Criminal Investigation and the IRS Bank Secrecy Act group, including:

  • Mark Young, Supervisory Special Agent, IRS – Criminal Investigation
  • Marita Gehan, Special Agent, IRS – Criminal Investigation
  • Angelo Horiates, III, Special Agent, IRS – Criminal Investigation
  • David Witiak, Revenue Agent, IRS – Small Business/Self-Employed Division

We greatly appreciate the IRS taking the time to participate in this program.  Direct communication between the government and representatives of the regulated industry always proves to be useful and important. We often have blogged on the many BSA/AML issues facing the gaming industry, including here, here and here.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. To learn more about Ballard Spahr’s Anti-Money Laundering Team, please click here.

Former Bank Employee Testimony Highlights Limited Whistleblower Protections in Europe

In September, the Danish law firm Bruun & Hjejle’s report (“B&H Report”) released its internal investigation report into alleged money laundering conducted through the Estonian branch of Danske Bank (“Danske”). The enormity of the scandal outlined in the report cannot be understated: from 2007 through 2015, at least 200 billion Euros were laundered through Danske. The release of the B&H Report has triggered the predictable cascade of resignations, investigations, hearings, recriminations and stock plunges that have begun playing out over the past eight weeks. These events, in turn, are beginning to illuminate the two principal sides of the scandal: the institutional failures at a large, sophisticated, international bank that allegedly allowed wrongdoing on this scale to go unchecked for eight years; and the efforts countries like Russia will make – and individuals and entities they will exploit – to illegally channel substantial wealth to the West.

As we previously blogged, the B&H Report found that Danske processed 200 billion Euros in suspicious transactions made by thousands of non-resident customers, principally from Russia and former Soviet states. According to the B&H Report, the success of the laundering was due to the near-total failure of the Estonian Danske branch to implement adequate anti-money laundering (“AML”) procedures and the parent Danske Bank Group’s failure to recognize and act upon numerous red flags that should have alerted it to the Estonian branch’s issues. However, while finding that the Estonian branch violated numerous legal obligations in failing to have and implement adequate AML processes and procedures, the B&H Report stopped short of accusing Danske’s Board of Directors, Chairman, Audit Committee, Chief Executive Officer or any executive of violating their legal obligations in regard to these failures.

Recent testimony by former Danske employee turned whistleblower painted a less forgiving picture. Continue Reading Danske Bank Money Laundering Scandal: The Tip of the Iceberg(s)

Are Proposed AML Regulations for Real Estate Closings and Settlements Soon to Follow?

The Financial Crimes Enforcement Network (“FINCEN”) announced on November 15 that it has renewed and revised its Geographic Targeting Orders (“GTOs”) that require U.S. title insurance companies to identify the natural persons behind legal entities used in purchases of residential real estate performed without a bank loan or similar form of external financing.  The new GTOs extend through May 15, 2019.

Notably, the list of covered geographic areas has expanded, and the monetary threshold has been reduced significantly to $300,000, so that it now no longer applies only to so-called “high end” real estate purchases.  Further, purchases involving virtual currency are now included within the reach of the GTO — an expansion which is consistent with prior expansions which extended the GTOs’ reach to transactions involving wires and personal and business checks.  Currently, the GTOs broadly apply to any purchases made using currency or a cashier’s check, a certified check, a traveler’s check, a personal check, a business check, a money order in any form, a funds transfer, or virtual currency.

A “legal entity” subject to the GTO reporting regime is defined as “a corporation, limited liability company, partnership or other similar business entity, whether formed under the laws of a state, or of the United States, or a foreign jurisdiction.”  The “beneficial owner” who must be identified is defined as “each individual who, directly or indirectly, owns 25% or more of the equity interests of the Legal Entity purchasing real property in the Covered Transaction.”  This definition tracks the Beneficial Ownership rule issued by FinCEN in 2016 for customer due diligence by covered financial institutions for new legal entity accounts by focusing on 25% or more ownership percentage, but it differs from the Beneficial Ownership rule by not including a “control” prong in its definition of a beneficial owner.

The press release issued by FinCEN for the new GTOs summarizes things well and is set forth here:

The purchase amount threshold, which previously varied by city, is now set at $300,000 for each covered metropolitan area. FinCEN is also requiring that covered purchases using virtual currencies be reported. Previous GTOs provided valuable data on the purchase of residential real estate by persons implicated, or allegedly involved, in various illicit enterprises including foreign corruption, organized crime, fraud, narcotics trafficking, and other violations. Reissuing the GTOs will further assist in tracking illicit funds and other criminal or illicit activity, as well as inform FinCEN’s future regulatory efforts in this sector.

Today’s GTOs cover certain counties within the following major U.S. metropolitan areas: Boston; Chicago; Dallas-Fort Worth; Honolulu; Las Vegas; Los Angeles; Miami; New York City; San Antonio; San Diego; San Francisco; and Seattle.

FinCEN appreciates the continued assistance and cooperation of the title insurance companies and the American Land Title Association in protecting the real estate markets from abuse by illicit actors.

The reporting is done through a special Currency Transaction Report, or CTR; the template for GTO reporting is here. Covered entities must retain relevant records for five years from the last effective day of the Orders (i.e., May 15, 2024) and must make them available to FinCEN and upon appropriate requests by law enforcement. FinCEN continues to maintain FAQs regarding the GTOs.

The latest GTOs represent a sustained scrutiny of the real estate market by FinCEN which began almost three years ago, and which has been expanded through repeated six-month increments.  The initial GTOs were issued in January 2016 to only certain title insurance companies for certain purchases only in the Borough of Manhattan and Miami-Dade County.  Clearly, FinCEN finds the data gleaned from GTOs to be very useful; FinCEN previously has claimed that it “about 30 percent of the transactions covered by the GTOs involve a beneficial owner or purchaser representative that is also the subject of a previous suspicious activity report.”

These sustained and expanding GTOs are also clearly part of the ongoing scrutiny by regulators across the globe regarding the issue of beneficial ownership and its role in potential money laundering schemes, as well as a similar global focus on money laundering through real estate and the general role of third party professionals who may facilitate money laundering.  As we have blogged, both FinCEN and the Financial Action Task Force (“FATF”) have focused for years on the AML risks inherent in real estate. For example, the December 2016 FATF Mutual Evaluation Report on the United States’ Measures to Combat Money Laundering and Terrorist Financing repeatedly highlighted the need for U.S. regulators and the real estate industry to do more to address money laundering and terrorist financing risks.  The FATF report’s executive summary asserted that “Residential Mortgage Lenders and Originators [RMLOs] . . . do not seem to have a good understanding of [money laundering] vulnerabilities in their sector or the importance of their role in addressing them.” The body of the FATF report elaborated that, “although banks have reasonably good AML/CFT programs overall, the same cannot be said of RMLOs, whose programs are still in the early implementation stage . . . .”

Future AML Regulation for Real Estate Closings and Settlements?

FinCEN’s press release states that the new GTOs “will inform FinCEN’s future regulatory efforts in this sector.” Presumably, FinCEN is using the data collected over the last three years to prepare to propose regulation which will formalize FinCEN’s scrutiny of the residential real estate market.  Indeed, the website for the OMB’s Office of Information and Regulatory Affairs currently states that, by the end of 2018, “FinCEN will issue an [Advance Notice of Proposed Rule Making] soliciting information regarding various businesses and professions, including real estate brokers that could be covered by the BSA as persons involved in real estate closings and settlements[,]” with the comment period to extend through to December 2019.  Over 15 years ago, in April 2003, FinCEN issued a similar advanced notice of proposed rule making regarding AML program requirements for persons involved in real estate closings and settlements — but of course never issued a final rule.  Now, given the data from years of GTOs, coupled with the heightened global scrutiny of the real estate industry, such regulations finally may become a reality.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. To learn more about Ballard Spahr’s Anti-Money Laundering Team, please click here.

A recent court opinion emphasizes the sensitive issues involved in terminating potentially difficult employees — or, from the employee’s or perhaps the government’s perspective, in terminating whistleblowers who were retaliated against for being willing to point out compliance failures. Although this competing dynamic applies across all industries, a recent opinion from the U.S. Federal District Court for the Eastern District of Louisiana, Kell v. Iberville Bank, addressed such a situation in the Anti-Money Laundering (“AML”)/Bank Secrecy Act (“BSA”) context, in which a bank’s former compliance officer sued her former employer for allegedly terminating her in retaliation for raising uncomfortable issues about claimed insider abuse and the alleged failure to file a Suspicious Activity Report (“SAR”). Continue Reading Case Highlights Potential Protections for BSA Whistleblowers

Second Post in a Two-Part Series

NYDFS Action Highlights the Need for Good Monitoring – and Good Consultants

In part one of this two-part post, we provided some practical tips for financial institutions to increase the chances that their Anti-Money Laundering (“AML”) programs will withstand regulators’ scrutiny, including: (1) promoting a culture of AML/Bank Secrecy Act (“BSA”) compliance; (2) focusing on transaction monitoring; (3) improving information sharing; (4) identifying and handling high-risk accounts appropriately; and (5) knowing your risks and continually improving your AML program to control those risks.

In this post we’ll discuss the consequences of potentially failing to heed these practical tips in a specific case: the New York Department of Financial Services’ (DFS) recent enforcement action against Mashreqbank. Further, we look forward to discussing all of these issues in an upcoming podcast in Ballard Spahr’s Consumer Financial Monitor Podcast series. So please continue to stay tuned.

Mashreqbank is the oldest and largest private bank in the United Arab Emirates. Its New York branch is Mashreqbank’s only location in the United States. It offers correspondent banking and trade finance services and provides U.S. dollar clearing services to clients located in Southeast Asia, the Middle East and Northern Africa. In 2016, the branch cleared more than 1.2 million USD transactions with an aggregate value of over $367 billion. In 2017, the branch cleared more than one million USD transactions with an aggregate value of over $350 billion.

The DFS enforcement action asserted that Mashreqbank’s AML/BSA program was deficient in a number of respects and that the New York branch had failed to remediate identified compliance issues. The enforcement action began with a DFS safety and soundness examine in 2016. In 2017, DFS and the Federal Reserve Bank of New York (FRBNY) conducted a joint safety and soundness examination. DFS provided a report of its findings to which Mashreqbank submitted a response.

In a consent order signed on October 10, 2018, Mashreqbank admitted violations of New York laws and accepted a significant monetary penalty and increased oversight for deficiencies in its AML/BSA and Office of Foreign Assets Control (OFAC) programs. Regulators pursued the enforcement action despite the New York branch’s strong cooperation and demonstrated commitment to building an effective and sustainable compliance program. Among other things, Mashreqbank agreed to pay a $40 million fine; to hire a third-party compliance consultant to oversee and address deficiencies in the branch’s compliance function including compliance with AML/BSA requirements; and to develop written revised AML/BSA and OFAC compliance programs acceptable to DFS.

The DFS and FRBNY examination findings demonstrate Mashreqbank’s failure to follow the practical tips identified in part one of this post. Specifically, the regulators found that Mashreqbank failed to: (1) have appropriate transition monitoring; (2) identify and handle high-risk accounts appropriately; and (3) know its risk and improve its AML program to control those risks.

Further, and as our discussion will reflect, the Mashreqbank enforcement action is also notable in two other respects. First, the alleged AML failures pertain entirely to process and the general adequacy of the bank’s AML program – whereas the vast majority of other AML/BSA enforcement actions likewise discuss system failures, they usually also point to specific substantive violations, such as the failure to file Suspicious Activity Reports (“SARs”) regarding a particular customer or set of transactions. Second, although the use of external consultants usually represents a mitigating factor or even a potential reliance defense to financial institution defendants, the DFS turned what is typically a defense shield into a government sword and instead criticized Mashreqbank for using outside consultants who, according to DFS, were just not very rigorous. This alleged use of consultants performing superficial analysis became part of the allegations of affirmative violations against the bank, thereby underscoring how financial institutions must ensure that their AML/BSA auditors or other consultants are experienced, competent, and performing meaningful testing, particularly when addressing issues previously identified by regulators. Continue Reading Practical Tips in Action: The Mashreqbank AML Enforcement Action