FinCEN announced on May 3, 2018 that Artichoke Joe’s, a card club and casino located in San Bruno, California and founded in 1916, has entered into a revised civil money penalty assessment regarding alleged deficiencies under the Bank Secrecy Act (“BSA”).  The most interesting aspect of this revised assessment is that it allows the casino to reduce its original $8 million penalty by $3 million if it successfully completes certain compliance undertakings.

No press release has been issued to date by FinCEN regarding this revised assessment, so its specific genesis is unclear.  Nonetheless, the revised assessment illustrates that financial institutions facing Anti-Money Laundering (“AML”)/BSA enforcement actions might be able to mitigate the financial consequences — not only when negotiating the initial penalty assessment, but even after it has been imposed — by undertaking steps towards enhanced compliance and monitoring.  It is also unclear whether the onerous nature of the original assessment, when compared to the available financial resources of the assessed institution, may have played a role in the revision. Continue Reading FinCEN Extends $3 Million Carrot to Card Club and Casino: Reduce Assessed Civil Penalty by Completing Compliance Undertakings

And a Tale of Four Countries: Singapore Fines a U.K. Bank, and the U.S. Imposes a Consent Order on a Chinese Bank

Less than a week apart, two major financial institutions (“FIs”) have been hit with penalties for failing to implement adequate anti-money laundering (“AML”) protections. But the penalties imposed by the involved regulators are different.  In this post, we report on the enforcement actions recently lodged against Standard Chartered PLC and the Industrial & Commercial Bank of China Ltd. by the Monetary Authority of Singapore and the United States Federal Reserve, respectively.  We also consider the approaches of these two regulators to the banks and the differing outcomes of the enforcement actions.

Continue Reading A Tale of Two Enforcement Actions

The Office of Foreign Assets Control (“OFAC”) wrapped up 2017 by issuing a series of high-profile designations generally prohibiting U.S. persons from conducting financial or other transactions with the identified individuals and entities, and freezing any assets which these individuals and entities may have under U.S. jurisdiction. Specifically, OFAC, acting in conjunction with a new Executive Order issued by the President pursuant to the Global Magnitsky Human Rights Accountability Act (“Magnitsky Act”), sanctioned on December 21 a list of alleged international bad actors, including Dan Gertler, a billionaire and international businessman from Israel who has been involved in, among other notorious ventures, alleged corruption in the mining of diamonds and copper in the Democratic Republic of the Congo. The next day, OFAC then sanctioned individuals and entities allegedly associated with Thieves-in-Law, an alleged and unapologetically-named Eurasian criminal entity; according to the U.S. government, Thieves-in-Law originated in Stalinist prison camps and has grown over time into a “vast criminal organization” stretching across the globe and into the United States. Continue Reading OFAC Designates Diamond Mining Billionaire, “Thieves in Law,” and Many Other International Targets as Subject to U.S. Sanctions and Asset Freezes

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 previously have observed that financial institutions face an increasing risk that alleged Anti-Money Laundering (“AML”) and Counter-Terrorism Financing (“CTF”) violations will lead to follow-on allegations of securities law violations – allegations brought not only by the government, but also by investor class action suits (see here and here).

This phenomenon of AML law and securities law converging is not limited to the United States, as reflected by a recent class action lawsuit filed against one of the biggest banks in Australia – Commonwealth Bank – which arises out of claims by the Australian government that the bank failed to act adequately on indications that drug rings were using its network of “intelligent” deposit machines to launder tens of millions of dollars. Continue Reading Investor Class Action Lawsuit Targets Australian Bank for Alleged AML Failures and Use of “Intelligent” Machines for Anonymous Cash Deposits

In its Summer 2017 issue of Supervisory Insights, published last week, the Federal Deposit Insurance Corporation (“FDIC”) provides some insight into its examination process and outcomes for Bank Secrecy Act (“BSA”)/Anti-Money Laundering (“AML”) compliance in an article entitled The Bank Secrecy Act: A Supervisory Update (“Supervisory Update”).  Although the Supervisory Update also summarizes the BSA and its history, we will focus here on the discussion of FDIC examinations. Continue Reading FDIC Provides Some Statistics on Violations Found During BSA/AML Exams: One Percent of Exams Lead to Formal Enforcement Actions

As digital currency continues to evolve, it continues to pose unfolding compliance, regulatory and criminal law challenges.  We will present two webinars on this topic in September, in which we will discuss issues posed under the Bank Secrecy Act and the money laundering and federal securities laws, among other issues.

The first webinar, “Current Trends in Criminal Law:  The Mechanics of Virtual Currency, from Legitimate Use to Misuse,” will be presented through Lawline, on September 7 at 11:30 am ET.

The second webinar, “Eye on Virtual Currency and Blockchain Technology,” will be presented through Ballard Spahr LLP, on September 19 at 12:00 pm ET.  Our colleague Odia Kagan also will participate in this free webinar, which also will discuss some of the data privacy issues posed by digital currency.

We hope that you join us.  You may review the webinars and register through the links provided above.  The innovative blockchain technology that is at the heart of digital currency likely will be embraced increasingly by more “traditional” financial institutions, so these issues have broad relevance.

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

On July 26, FinCEN, in coordination with the U.S. Attorney’s Office for the Northern District of California (“NDCA USAO”), assessed a $110,003,314 civil money penalty against BTC-e a/k/a Canton Business Corporation (“BTC-e”) for willfully violating the Bank Secrecy Act (“BSA”), and a $12 million penalty against Alexander Vinnik, a Russian national who is one of the alleged operators of BTC-e, for his role in the violations.  FinCEN’s press release indicates that this is the first enforcement action it has taken against a foreign-located money services business (“MSB”) doing business in the United States.  As we previously have blogged, FinCEN released interpretive guidance in March 2013 stating that an administrator or exchanger of virtual currency is an MSB under the BSA unless a limitation or exemption applies.

In a parallel criminal investigation, Vinnik was arrested and detained in Greece and charged in a 21-count superseding indictment brought by the NDCA USAO and DOJ’s Computer Crime and Intellectual Property Section. The superseding indictment alleges that Vinnik and BTC-e operated an unlicensed MSB doing business in the U.S., in violation of 18 U.S.C. § 1960, and committed money laundering, in violation of 18 U.S.C. §§ 1956 and 1957, by facilitating virtual currency transactions involving various crimes, including computer hacking, identity theft, tax refund fraud schemes, public corruption, and drug trafficking. The superseding indictment also provides some clues to the fate of the collapsed virtual currency exchange Mt. Gox, once reportedly the largest such exchange in the world. Continue Reading FinCEN Takes First Action Against Foreign-Located MSB—“The Virtual Currency Exchange of Choice for Criminals”—For Willfully Violating U.S. AML Laws

Financial institutions face an increasing risk that alleged violations of the Bank Secrecy Act (“BSA”) and Anti-Money Laundering (“AML”) requirements will lead to follow-on allegations of securities law violations. We have blogged about investor class action suits against financial institutions based on alleged violations of BSA/AML rules.  We also have blogged about recent enforcement actions by the SEC alleging violations of the securities laws due to underlying violations of the BSA by broker dealers.  This post briefly notes the latest chapter in what seems to be a growing book regarding the convergence of AML/BSA and securities law.

In a complaint, later amended, filed in the Middle District of Tennessee against BancorpSouth Inc., investor plaintiffs alleged that the bank and its CEO, CFO and COO made misleading statements and omissions in SEC filings regarding (1) the bank’s compliance with BSA/AML regulations and the bank’s fair lending practices, and (2) the closing of two pending mergers/acquisitions. Plaintiffs allege that defendants knew at the relevant time that the bank was not in compliance with the AML/BSA regulations, due to a pending “target review” by the FDIC – which later resulted in a consent order between the FDIC and the bank regarding its AML obligations – but nonetheless stated that (1) the bank was in compliance with all banking laws and regulations; (2) they expected the two planned mergers to close in the second quarter of 2014; and (3) they expected to receive regulatory approval for those mergers. The plaintiffs allege that defendants thereby violated Sections 10(b) and 20(a) of the Securities Exchange Act and Rule 10b-5 by making statements which misrepresented or omitted material facts.  According to the plaintiffs, when the AML/BSA problems eventually came to light, these problems allegedly delayed the anticipated mergers, and the bank’s stock value fell significantly, which thereby harmed investors.

As noted, the plaintiffs sued not only the bank itself, but also members of senior management. This approach is consistent with the recent focus on individual liability in AML/BSA matters.  Specifically, the plaintiffs alleged that the individual executive defendants:

. . . . were ultimately responsible for ensuring that the Bank maintained an effective BSA/AML compliance program and that the Company’s program complied with the “4 Pillars” of BSA/AML compliance. In fact, federal regulations specifically require that the Company’s BSA/AML compliance program must be in writing, approved by the Board of Directors . . . , and noted in the board minutes.  Defendants were also responsible for creating a “culture of compliance” to ensure Company-wide adherence to the Bank’s BSA/AML policies, procedures and processes, but failed to do so, instead prioritizing . . . cost-cutting measures.

On Monday, the district court granted, for the second time (after having been initially reversed by the Court of Appeals for the Sixth Circuit), class certification to the plaintiffs against the bank.  The class certification decision involved a review the requirements imposed by Rule 23(a) and Rule 23(b) of the Federal Rules of Civil Procedure and  will not be analyzed here. The point for the purposes of this blog is that it has become clear that, in regards to AML/BSA compliance, publically-traded financial institutions are compelled to wage a multi-front war.  Regardless of the actual merits of the complaint against BanccorpSouth, its mere existence reflects that financial institutions must concern themselves not only with FinCEN, the Department of Justice, and the relevant examiner, but also with putative investor plaintiffs and the SEC – thereby increasing the stakes regarding decisions over the disclosure in SEC filings of possible violations of AML/BSA requirements.

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On June 5, the SEC filed suit against Salt Lake City-based Alpine Securities, Corp. (“Alpine”). The complaint, filed in the Southern District of New York, alleges that the broker-dealer ran afoul of AML rules by “routinely and systematically” (i) failing to file Suspicious Activity Reports (“SARs”) for stock transactions it had flagged as suspicious or, (ii) on thousands of occasions between 2011 and 2015 when Alpine did file SARs, omitting key information, such as the criminal or regulatory history of customers and disclosures as to whether those customers represented a foreign institution.

Under the Bank Secrecy Act (“BSA”), Alpine and other broker-dealers must report suspicious transactions in the form of SARs filed with FinCEN. These filings pertain to reports of transactions or patterns of transactions involving at least $5,000 wherein a covered entity “knows, suspects, or has reason to suspect” that the transaction involves funds representing ill-gotten gains; is intended to hide funds obtained from illegal activities; is designed to evade the BSA; or has no business or apparent lawful purpose and the filing institution knows of no reasonable explanation for the transaction. SARs have a narrative section for the filer to describe the facts of the suspicious incident, which is regarded by law enforcement as a critical section.

The SEC has alleged that Alpine violated Section 17(a) of the Securities Exchange Act of 1934, and Rule 17a-8 promulgated thereunder, which require broker-dealers to comply with the recordkeeping, retention and report obligations of the BSA. Although Alpine had an AML/BSA compliance program (as is required for broker-dealers by both the BSA and FINRA Rule 3310), the complaint alleges that the program was not implemented properly in practice and mischaracterized what Alpine actually did. In part, the SEC alleges that Alpine used two standard templates for SAR filings which did not allow the filer to describe any of the red flags or other material information which caused Alpine to file the SAR. Importantly, the complaint also alleges that FINRA had examined Alpine and brought these deficiencies to its attention, but Alpine thereafter failed to take meaningful steps to address them and “continued its pattern of omitting material red flag and other information from its SARs.”

Much of Alpine’s business involves clearing microcap transactions. Although the broker-dealer has a history of disciplinary action by FINRA, the instant action also reflects a trend by the SEC to use AML rules as a means to combat alleged fraud related to the sale of microcap securities. Earlier this year, New York-based Windsor Street Capital also was charged with failing to file SARs; that matter, currently before an SEC administrative law judge, remains pending. All told, the action against Alpine exemplifies the SEC’s heightened interest in ensuring broker-dealers’ adherence to AML rules and standards. It also reiterates the need for any financial institution to implement effectively in practice its AML compliance plan: the best written compliance plan can turn into the centerpiece of regulators’ allegations if it merely becomes a catalogue of what the financial institution failed to do.

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