As widely reported, the Spanish police raided last year the Madrid offices of the Chinese state-run Industrial and Commercial Bank of China (“ICBC”), the world’s biggest bank by assets. In the nearly 18 months following that raid and the numerous arrests made at that time, very little information about this money laundering investigation became known publically. That is, until Reuters recently published a lengthy article resulting from its review of “thousands of pages of confidential case submissions” and its “interviews with investigators and former ICBC employees.” The article raises numerous questions regarding the enforcement of European money laundering laws against Chinese banks operating abroad, as well as certain unique political and diplomatic considerations that may exist in those enforcement efforts. Below, we will compare these efforts with similar U.S. enforcement efforts, which are potentially gaining steam. Continue Reading High-Profile Spanish Money Laundering Investigation of Chinese Bank Raises Questions About Future of Similar U.S. Enforcement
In May 2016, Treasury’s Financial Crimes Enforcement Network (FinCEN) issued its final rule on Customer Due Diligence (CDD) Requirements for Financial Institutions. The Final Rule can be found here; our prior discussion of the Final Rule can be found here.
The new rule requires covered financial institutions to identify and verify the identity of the beneficial owners of all legal entity customers. It also adds CDD as a fifth pillar to the traditional four pillars of an effective anti-money laundering (AML) program. The implementation date of May 11, 2018 is less than a year away. How can you ensure that you’ll be ready? Continue Reading FinCEN’s Beneficial Ownership Rule: A Practical Guide to Being Prepared for Implementation
Part Two of a Three-Part Series
In the second part of this series, we explore the practical effects of the FinCEN and DOJ guidance documents on industries attempting to serve marijuana related business (“MRBs”). On June 27, 2017, the Tenth Circuit issued an interesting and divided opinion showing us how difficult it can be to square the prohibitions in the federal Controlled Substances Act (“CSA”) and money laundering statutes with state legislation legalizing certain MRB activity and the seemingly permissive nature of the FinCEN and DOJ guidance documents. Continue Reading Continued and Unexpected Roadblocks to Serving the Marijuana Industry: Fourth Corner Credit Union v. Federal Reserve Bank
Part One of a Three-Part Series
We begin this week with a three-part series on banking and the marijuana industry. States continue to pass medical and recreational use marijuana legislation despite that the fact that the substance remains classified as a Schedule I drug subject to the federal Controlled Substances Act. Thus, the medical and recreational marijuana industries continue to struggle with access to banking and credit, and those who attempt to serve these industries find themselves subject to the Bank Secrecy Act (“BSA”) and the criminal money laundering provisions. As we will detail this week, the struggle for financial institutions attempting to service the marijuana industry comes not only from the BSA and AML provisions, but in other forms. We start this week with an overview of the guidance documents issued by the federal government which identify the enforcement priorities and also potential windows for financial institutions to service the marijuana industry. We will follow up with a discussion of a recent federal court decision illustrating the practical difficulties of squaring the prohibitions of the federal drug laws with permissive state laws and the federal guidance documents. We will conclude with an exploration of how federal agencies beyond the Department of Justice (“DOJ”) and the Financial Crimes Enforcement Network (“FinCEN”), such as the Securities and Exchange Commission (“SEC”), can further muddy these waters by staking out their own regulatory and enforcement priorities. –Priya Roy Continue Reading Banking and the Marijuana Industry
Part III of the Analysis of the Combatting Money Laundering, Terrorist Financing, and Counterfeiting Act of 2017
As we recently blogged, Senators Chuck Grassley (R-Iowa) and Diane Feinstein (D-California) introduced on May 25, 2017 a bill, S. 1241, entitled the Combatting Money Laundering, Terrorist Financing, and Counterfeiting Act of 2017. Although most sections of the bill address federal criminal money laundering statutes, the proposed Section 13, relating to prepaid access devices, addresses an area governed by the Department of Treasury and FinCEN.
Section 13 of the bill, which seeks to amend 18 U.S.C. § 5312(a), addresses anti-money laundering reporting requirements regarding “prepaid access devices.” The most immediate impact of these changes would be to require cross-border reporting of funds accessible through products covered by the expanded definition of “prepaid access devices” on the Report of International Transportation of Currency or Monetary Instruments (“CMIR”). Under 31 U.S.C. §5316, a person or her agent or bailee must file a CMIR, otherwise known as FinCEN Form 105, when the person knowingly transports more than $10,000 in “monetary instruments” into or out of the United States.
The proposed amendment has three significant elements:
- It would expand the definition of “financial institution” under the Bank Secrecy Act to include issuers, redeemers and cashiers of “prepaid access devices,” digital currency,” or “any digital exchanger or tumbler of digital currency.”
- The bill would greatly expand the definition of “prepaid access device” in the statute. This expanded language includes a very broad catchall provision, sweeping in any “other instrument, that provides a portal to funds or the value of funds that have been paid in advance and can be retrievable and transferable at some point in the future,” likely including digital currency.
- The bill would define all items covered by the expanded definition of “prepaid access device” as “monetary instruments.”
There is some Congressional history to this proposal. A 2013 Report by the U.S. Senate Caucus on International Narcotics Control, titled “The Buck Stops Here: Improving U.S. Anti-money Laundering Practices,” states that Caucus Co-Chairs Feinstein and Grassley and Caucus Member Sheldon Whitehouse had written a letter in early 2011 to Treasury Secretary Geithner “urging the Administration to quickly propose and finalize a rule making stored value subject to cross-border reporting requirements.” FinCEN issued a notice of proposed rulemaking in October 2011 (“2011 NPR”) that would have added “tangible prepaid access devices” (such as stored value cards) to the definition of monetary instruments. The 2011 NPR received significant commentary from industry and a final rule has not been issued. According to the docket folder in Regulations.gov, FinCEN is planning to release a supplemental NPR in November 2017. It is worth noting that the scope of “tangible prepaid access devices” in the 2011 NPR was much narrower than the definition of “prepaid access devices” in the current bill.
Section 13 likely will need significant reworking if the bill advances. The drafters do not appear to understand how reloadable prepaid accounts work and the expanded definitions may not be workable in their current form. Among other issues, reloadable products can evade having funds in the account at the time of a border crossing. The broad references to digital currency also will require review. There is no question that the prepaid industry will have to work hard to educate lawmakers, similar to their ongoing work with the CFPB on the recent prepaid account final rule.
Senators Chuck Grassley (R-Iowa) and Diane Feinstein (D-California) introduced on May 25, 2017 a bill, S. 1241, entitled the “Combatting Money Laundering, Terrorist Financing, and Counterfeiting Act of 2017.” Although it is of course impossible to know whether this bill ultimately will be enacted into law, the bill addresses a lengthy catalogue of important issues relevant to money laundering, AML programs, and international tax evasion.
- The bill is here.
- A general summary of the bill is here.
- A more detailed and useful summary of each section of the proposed bill is here.
- The press release for the bill is here.
Perhaps not surprisingly, the press release repeatedly states that the bill is designed to fight terrorism. No doubt – but if enacted, the bill’s terms also will apply to any sort of conduct implicated by its amendments to sections of the criminal money laundering statutes, 18 U.S.C. §§ 1957 and 1957, and the Bank Secrecy Act. Further, the press release does not explicitly mention the Panama Papers scandal. However, given language in the bill seeking to address international tax evasion; the subpoenaing of records of foreign banks using U.S. correspondent bank accounts; the concealment of account ownership; and the concealment of the source of assets in transactions; the Panama Papers scandal looms in the background and presumably motivated much of S. 1241, just as it may have influenced the timing of the final release of the beneficial ownership regulations by FinCEN. Further, S. 1241 may be seeking to respond to mounting international criticism that the U.S. has become a haven for tax cheats and money launderers.
The proposed bill reads like a wish list of statutory amendments provided by the Department of Justice. Indeed, the press release also quotes Senator Feinstein as stating that “[o]ur bill adopts many of the recommendations made by the Justice Department to ensure that transnational criminal organizations, including terrorist groups, face consequences for laundering illicit funds, evading laws and promoting criminal activity[.]” The press release further states:
While calculating the exact scale of worldwide money laundering is impossible, estimates suggest the annual sum to be in the trillions of dollars. Perpetrators use a variety of methods to conceal and move funds across borders and through the global financial system in an effort to evade law enforcement. These techniques include longstanding unofficial money transferring systems, such as hawalas, and more modern tools, like prepaid access cards and digital currencies.
The Senators’ legislation modernizes criminal money laundering laws, updates counterfeiting statutes to prohibit state of the art counterfeiting methods, enhances tools to crack down on smugglers and tax cheats, and promotes transparency in the U.S. financial system.
We anticipate that follow-up blog posts will analyze certain specific amendments in more detail, and their potential implications. Given the breadth of issues covered by the bill, this post merely lists below the topics covered by the bill, by drawing from its table of contents. The section-by-section summary noted above provides more information on each topic.
- Transportation or transhipment of blank checks in bearer form.
- Bulk cash smuggling.
- Section 1957 violations involving commingled funds and aggregated transactions.
- Charging money laundering as a course of conduct.
- Illegal money services businesses.
- Concealment money laundering.
- Freezing bank accounts of persons arrested for offenses involving the movement of money across international borders.
- Prohibiting money laundering through hawalas, other informal value transfer systems, and closely related transactions.
- Technical amendment to restore wiretap authority for certain money laundering and counterfeiting offenses.
- Making the international money laundering statute apply to tax evasion.
- Conduct in aid of counterfeiting.
- Prepaid access devices, digital currencies, or other similar instruments.
- Administrative subpoenas for money laundering cases.
- Obtaining foreign bank records from banks with United States correspondent accounts.
- Clarification of Secret Service authority to investigate money laundering.
- Prohibition on concealment of ownership of account.
- Prohibition on concealment of the source of assets in monetary transactions.
Stay tuned . . . .
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Settlement of FinCEN Action Against Former AML Chief Compliance Officer Serves as Possible Bellwether of Future Cases
This post discusses individual liability in AML/BSA enforcement, which is an area of increasing attention. Indeed, according to public statements by the government, individual liability is the focus of enhanced scrutiny across the enforcement table.
Although the raw number of enforcement actions against individuals in the AML/BSA realm (or even in the broader realm of general financial crime) has not climbed dramatically, even a few enforcement actions can have a profound effect on an industry – and that appears to be occurring in the AML realm. We begin our discussion here with a recent settlement of a high-profile enforcement action against a former AML compliance officer, and how it highlights potential individual liability. Ironically, special scrutiny can apply to the very people specifically tasked with maximizing compliance at a corporation, and such scrutiny can end up pitting them against a company’s management and board. Continue Reading Individual Accountability in AML Cases
A Guest Blog by Greg Baer, President of The Clearing House
Today we are very pleased to welcome guest blogger Greg Baer, who will address a series of significant issues posed by a detailed paper published by The Clearing House, a banking association and payments company that is owned by the largest commercial banks and dates back to 1853. The 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, identifies problems with that regime, and proposes a series of reforms to remedy them.
Mr. Baer is the President of The Clearinghouse Association L.L.C. and the Executive Vice President and General Counsel of The Clearing House Payments Company L.L.C. The Clearing House Association represents the interests of The Clearing House’s commercial bank ownership on a diverse range of regulatory and legislative matters. Its affiliate, The Clearing House Payments Company, is the only private-sector ACH and wire operator in the United States, clearing and settling nearly $2 trillion in U.S. dollar payments each day, representing half of all commercial ACH and wire volume. Prior to joining The Clearing House, Mr. Baer was Managing Director and Head of Regulatory Policy at JPMorgan Chase. He previously served as Deputy General Counsel for Corporate Law at Bank of America, and as a partner at Wilmer, Cutler, Pickering, Hale & Dorr. He also served as Assistant Secretary for Financial Institutions at the U.S. Department of the Treasury, after serving as Deputy Assistant Secretary. Finally, Mr. Baer was managing senior counsel at the Board of Governors of the Federal Reserve System.
The New Paradigm is the product of two closed-door symposia that convened approximately 60 leading experts in the field of AML/CFT. The group included senior former and current officials from law enforcement, national security, bank regulation and domestic policy; leaders of prominent think tanks in the areas of economic policy, development, and national security; consultants and lawyers practicing in the field; FinTech CEOs; and the heads of AML/CFT at multiple major financial institutions. This blog post takes the form of a Q & A session, in which Mr. Baer responds to questions posed by Money Laundering Watch and explains the main positions set forth in The New Paradigm, and also replies to some potential counter-arguments. We hope you enjoy this discussion of these important issues. Continue Reading The New Paradigm: Proposed Reforms of the AML/CFT Regime by The Clearing House
“Sometimes, the third time really is the charm” wrote the District Court for the District of Columbia on April 14, 2017. In its opinion, the court upheld FinCEN’s imposition of the Patriot Act’s fifth special measure against FBME Bank Ltd., a Tanzanian chartered bank operating primarily out of Cyprus. The court previously had twice blocked FinCEN’s attempt to prevent FBME Bank from conducting banking business in the United States. However, the district court granted FinCEN’s motion for summary judgment and lifted the stay blocking FinCEN’s final rule. Last week, the D.C. Circuit refused to reinstate the full stay of judgment pending appeal noting simply that FBME Bank had “not satisfied the stringent requirements for a stay pending appeal,” without addressing any of the specific merits questions that remained before it. Thus, for the time being, the district court’s judgment upholding FinCEN’s rule finding that FBME Bank was “of primary money laundering concern” remains in place. FBME Bank may no longer utilize correspondent banks in the United States.
The potentially broader implications for other banks and future actions are as follows: under the logic of the judgment which the Court of Appeals just declined to stay, FinCEN does not need to look to comparative or other objective benchmarks involving other similarly-situated banks to support a claim in an enforcement action that transactions occurring at the bank in question involved an unacceptably high number of SAR filings, use of shell companies, or other indicia of suspicious activity. Rather, findings based on selected, absolute data may suffice. Continue Reading Bank Loses Stay of Court Judgment Upholding Broad FinCEN Discretion
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.
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