On September 15th, FinCEN issued its latest “Advisory on FATF-Identified Jurisdictions with AML/CTF Deficiencies.” The FATF, or the Financial Action Task Force, is a 37-member intergovernmental body, including the United States, that establishes international standards to combat money laundering and the financing of terrorism. As part of its listing and monitoring process to ensure compliance with its international Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) standards, the FATF identifies certain jurisdictions as having “strategic deficiencies” in their AML/CFT regimes. In its latest Advisory, FinCEN notes the changes in the FATF-named jurisdictions and directs financial institutions to consider these changes when reviewing their obligations and risk-based policies, procedures and practices relating to the named jurisdictions. We will discuss these changes and some practical takeaways for U.S. financial institutions seeking to ensure compliance with these changes in their AML programs. Continue Reading FinCEN Issues Latest Advisory on FATF-Identified Jurisdictions with AML/CFT Deficiencies
On Friday, the Department of Justice (“DOJ”) filed a civil forfeiture complaint in the Southern District of Texas seeking recovery of approximately $144 million in assets that allegedly represent the proceeds of foreign corruption and which were laundered in and through the U.S. The complaint’s narrative focuses on Diezani Alison-Madueke, who is Nigeria’s former Minister for Petroleum Resources. The 52-page complaint, which contains additional attachments, is very detailed – but nonetheless interesting reading – so we will discuss here only three salient points:
- The most eye-catching property subject to forfeiture, the spectacular yacht Galactica Star (which you can inspect here), apparently has no discernible nexus to the U.S. – except that the funds used to acquire the yacht allegedly were transferred through correspondent bank accounts at financial institutions which process their U.S. dollar wire transactions through the U.S.
- The complaint emphasizes the continued enforcement focus on high-end U.S. real estate as a potential vehicle for money laundering from abroad.
- The complaint purports to quote a recording of a conversation allegedly made by Ms. Alison-Madueke herself, in which she allegedly offers a co-schemer some critiques on his approach to laundering illicit funds.
Two days after North Korea’s successful long-range ballistic missile test, the U.S. District Court for the District of Columbia unsealed a memorandum opinion which granted the Department of Justice “damming” warrants to seize all funds in bank accounts belonging to five Chinese companies which allegedly were used to hide transactions with North Korea using U.S. currency in violation of U.S. sanctions and money laundering laws. The underlying conduct allegedly resulted in over $700 million of prohibited transactions being processed by eight international banks. The opinion is noteworthy not only because it demonstrates the important relationship between money laundering laws and foreign policy, but also for the government’s use of anticipatory warrants to seize the assets upon arrival to the targeted accounts, and to prevent those assets from exiting.
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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On May 23, the federal court of appeals for the District of Columbia Circuit rejected an appeal by the majority shareholders in Banca Privada d’Andorra S.A. (“BPA”) regarding claims that FinCEN violated the Administrative Procedure Act when issuing a March 2015 Notice of Finding that the Andorran bank was a financial institution “of primary money laundering concern” and a Notice of Proposed Rulemaking to impose a special measure pursuant to Section 311 of the USA PATRIOT Act, effectively cutting off the bank’s access to the U.S. financial system.
Specifically, FinCEN had imposed against BPA the fifth and most severe special measure under Section 311, which prohibits a foreign financial institution from opening or maintaining in the United States through a domestic financial institution a correspondent account or payable-through account. See 31 U.S.C. § 5318A(b)(5). We previously have blogged about FinCEN’s ability to impose the fifth special measure against foreign financial institutions, which the D.C. Circuit court aptly described in the BPA matter as a possible “death sentence” for smaller foreign banks which rely on access to correspondent accounts in the United States for U.S. dollar clearing.
The appellants had sought two principal claims for relief: (1) an order requiring FinCEN to withdraw the Notices; and (2) a declaration that the Notices were unlawfully issued. The D.C. Circuit affirmed the judgment of the district court dismissing the appellants’ first claim for relief on mootness grounds because FinCEN, once “satisfied that the Bank no longer posed a money laundering concern,” withdrew both Notices after the Andorran government seized BPA and transferred its assets to a bridge bank. However, the appellate court deviated from the analysis of the district court with respect to the second claim for relief by finding that this claim should be dismissed not for mootness, but for lack of standing because the appellants had failed to show that a judicial order would redress effectively their alleged injuries.
The appellants argued that a decision holding that the two Notices were unlawful would redress their injuries because “there is a substantial likelihood that a decision finding that FinCEN improperly labeled [the bank] as of ‘primary money laundering concern’ would materially impact the position of Andorran authorities as to the proper course to be followed with respect to the sale of [the bank’s] assets, what should be done with the corporate structure and any assets that remain, and how the majority shareholders, as [the bank’s] owners, should now be treated in the process.” The D.C. Circuit disagreed, reasoning that even if the appellants had shown injury and causation to support standing, the appellants nonetheless “offered no evidence that the Andorran Government would reverse course as a result of the withdrawal of FinCEN’s Notices” and so “have not shown that the sale actually could be undone even if the Andorran Government were so inclined.”
This case involves unusual facts and procedure and potentially represents a relatively unique holding. Having said that, the opinion more generally reflects how the government can put the “rabbit in the hat” in regards to standing to sue, or lack thereof: by issuing a “death sentence” under Section 311, FinCEN ultimately deprived the former bank’s majority shareholders of standing to sue over almost certain and severe injury caused by FinCEN – specifically because the death sentence was implemented with such relentless efficiency. Thus, harm and causation was so clear that, in effect, redress was impossible.
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Proposed Settlement Comes After Court Issues Rulings on Extraterritorial Application of U.S. Criminal Law, Evidence of Intent to Conceal and Tracing of Money Laundering Proceeds
On the eve of trial this past Friday, the government announced an agreement to settle, subject to court approval, a major civil forfeiture action in the Southern District of New York. In the case, United States v. Prevezon Holdings, Ltd. et al., the government alleged an elaborate scheme involving money laundering and other offenses committed in Russia, Cyprus, and Manhattan. The case gained some notoriety in the press due to lurid allegations of the suspicious death while in pretrial detention in Moscow of a Russian lawyer who had uncovered the tax refund fraud scheme, and the alleged defenestration earlier this year of a lawyer working for the decedent’s family. Although the civil forfeiture complaint filed in 2013 sought to forfeit at least $230 million worth of assets, the parties settled for approximately $5.9 million. In the wake of this settlement, both the defense and the government now appear to be claiming victory.
This post will analyze an opinion issued by the court in this case last week, prior to the settlement, denying summary judgment to the defense. The legal rulings contained therein are perhaps not as suitable for a Hollywood-style thriller as some of the content of the government’s press releases and pleadings, but nonetheless represent important issues in the field of money laundering and forfeiture. Primarily, we analyze an increasingly common and key question: when can U.S. law apply to conduct occurring primarily overseas? This question has broad implications for federal criminal law enforcement in general, including for RICO and tax fraud prosecutions, as well as for potential civil lawsuits brought by shareholders or other plaintiffs. Continue Reading Forfeiture Case Based on Alleged Elaborate $230 Million Russian Laundering and Fraud Scheme to Settle
“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
The Supreme Court granted certiorari on April 3 to decide whether Jordan-based Arab Bank may be liable for claims including allegations that its New York branch processed transactions for known terrorists. While the central issue before the Court will be the scope of the Alien Tort Statute (“ATS”) – namely whether it permits corporate liability for violations of international law – Jesner v. Arab Bank also illustrates how alleged AML/BSA failures can lead to yet another avenue for secondary legal liability for financial institutions, as we previously have noted in other contexts. Depending on the outcome of the Court’s opinion in Jesner, such U.S. exposures may extend to foreign financial institutions even when the alleged conduct occurs primarily abroad. Continue Reading Weighing Corporate Liability under the Alien Tort Statute: What it Means for AML/CFT Controls
In part two of our review of the 2016 developments in Anti-Money Laundering (AML), the Bank Secrecy Act, (BSA), the criminal money laundering statutes, forfeiture, and related issues, we discuss four additional key topics:
- Federal banking regulators’ efforts to ease industry concerns about overly aggressive Anti-Money Laundering (AML)/Bank Secrecy Act (BSA) enforcement and limit the practice of “de-risking”
- Virtual currency
- Court opinions of note under the money laundering statutes and the BSA
- Forfeiture policy and enforcement
You can read more about these topics areas in the blogs that follow. Click here to read the full article 2016 Year in Review: Money Laundering (Part Two). Click here if you missed Part One of our 2016 year in review.
On August 30, 2016, the U.S. Department of the Treasury and four U.S. federal banking regulators sought to correct a problem—at least in part one of their own creation—by issuing a “Joint Fact Sheet on Foreign Correspondent Banking” to clarify enforcement priorities regarding AML/BSA and countering the financing of terrorism (CFT) regimes. The Fact Sheet highlighted the importance of maintaining correspondent banking relationships with foreign financial institutions and the value of the free flow of monies within and across global economies.