Financial Action Task Force (FATF)

Second of a Two-Part Blog: Anti-Money Laundering Programs Coming to the Legal Profession?

Yesterday, we began our discussion of the proposed Corporate Transparency Act of 2017 (the “Act”), and observed that, if passed, the Act would represent another chapter in the domestic and global campaign to increase transparency in financial transactions through information gathering by private parties and expanded requirements for Anti-Money Laundering (“AML”) reporting. Today, we summarize the details of this complex legislation, focusing in particular on two significant ways in which the Act would amend the Bank Secrecy Act (“BSA”):

  • Requiring regulations to establish minimum standards for State procedures regarding the formation of legal entities such as corporations and limited liability companies (“LLCs”) and the identification of the beneficial owners of such entities when they are formed.
  • Adding “formation agents” – i.e., those who assist in the creation of legal entities – to the BSA’s definition of a “financial institution” which is subject to the BSA’s reporting and AML obligations. This new definition potentially applies to a broad swath of businesses and individuals previously not regulated directly by the BSA, including certain attorneys.

Continue Reading Expanded Beneficial Ownership Reporting and AML Duties Under the Corporate Transparency Act

First of a Two-Part Blog

In late June, Representatives Carolyn Maloney and Peter King of New York introduced The Corporate Transparency Act of 2017 (the “Act”). In August, Senators Ron Wyden and Marco Rubio introduced companion legislation in the Senate. A Fact Sheet issued by Senator Wyden is here. Representative King previously has introduced several versions of this proposed bipartisan legislation; the most recent earlier version, entitled the Incorporation Transparency and Law Enforcement Assistance Act, was introduced in February 2016.  Although it is far from clear that this latest version will be passed, the Act is worthy of attention and discussion because it represents a potentially significant expansion of the Bank Secrecy Act (“BSA”) to a whole new category of businesses.

The Act is relatively complex.  In part, it would amend the BSA in order to compel the Secretary of the Treasury to issue regulations that would require corporations and limited liability companies (“LLCs”) formed in States which lack a formation system requiring robust identification of beneficial ownership (as defined in the Act) to themselves file reports to the Financial Crimes Enforcement Network (“FinCEN”) that provide the same information about beneficial ownership that the entities would have to provide, if they were in a State with a sufficiently robust formation system.  More colloquially, entities formed in States which don’t require much information about beneficial ownership now would have to report that information directly to FinCEN – scrutiny which presumably is designed to both motivate States to enact more demanding formation systems, and demotivate persons from forming entities in States which require little information about beneficial ownership. However, there is another facet to the Act which to date has not seemed to garner much attention, but which potentially could have a significant impact. Under the Act, formation agents – i.e., those who assist in the creation of legal entities such as corporations or LLCs – would be swept up in the BSA’s definition of a “financial institution” and therefore subject to the BSA’s AML and reporting obligations.  This expanded definition potentially applies to a broad swath of businesses and individuals previously not regulated directly by the BSA, including certain attorneys. Continue Reading The Corporate Transparency Act: A Proposal to Expand Beneficial Ownership Reporting for Legal Entities, Corporate Formation Agents and – Potentially – Attorneys

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

A Guest Blog by Bruce Zagaris, Esq.

Today we are very pleased to welcome guest blogger Bruce Zagaris, who is a Partner at the Washington, D.C. law firm of Berliner, Corcoran & Rowe.  He is the editor of the International Enforcement Law Reporter; the author of International White Collar Crime: Cases and Materials; and an Adjunct Professor at the Texas A & M University School of  Law.  Mr. Zagaris also is a member of the Task Force on the Gatekeeper and the Profession of the American Bar Association (“ABA”).

As Mr. Zagaris explains immediately below, growing international trends have led the ABA Task Force to consider a new Model Rule of Professional Conduct that would impose basic “client due diligence” requirements on U.S. lawyers to determine whether their clients are engaging in money laundering or terrorist financing.  This development relates directly to issues about which we previously have blogged, including European perceptions of lawyers as potential gatekeepers and of the United States as a haven for money laundering and tax evasion.  The possible new Model Rule potentially would represent a significant shift in how the U.S. legal profession regards itself and its relationship to its clients.  We hope that you enjoy this discussion by Mr. Zagaris of these important issues. -Peter Hardy

Increasingly, international bodies are calling for higher standards for gatekeepers, known in the parlance of the Financial Action Task Force (“FATF”) as “designated non-financial businesses and professions” (“DNFBPs”). DNFBPs include lawyers, accountants, real estate agents, and trust and company service providers (other than trust companies).  In particular, in the United States, lawyers play a key role in areas that give rise to potential money laundering:  company formation; real estate transactions; business planning; tax planning; wealth management; trust and estate work; and formation and operation of charities, including transnational philanthropy.

In 2006 and again in 2016, the FATF, an intergovernmental body in charge of making and overseeing compliance with international money laundering standards, performed Mutual Evaluation Reports (“MERs”) to assess compliance by the United States with international standards.  While the FATF gave the U.S. high marks generally, both MERs found the U.S. “non-compliant” in gatekeepers and entity transparency.

As a result of this international trend, the ABA’s Task Force on the Gatekeeper and the Profession has prepared and discussed a new ABA Model Rule of Professional Conduct that would impose basic “client due diligence” requirement on lawyers.  We discuss this potential new model rule, and the developments which have led to its consideration, below.  Clearly, due diligence for lawyers will increasingly be on the radars of banks, financial institutions, and law firms. Continue Reading AML Due Diligence Standards for U.S. Lawyers

This week, we have the opportunity to lead a discussion with real estate industry professionals about AML and CFT trends at the Real Estate Services Providers Council, Inc. (RESPRO®) Annual Conference in Las Vegas. We have written several times in this blog about the real estate industry, including the 2017 extension of the GTOs for title insurance companies, other recent FinCEN activities, and the FATF’s conclusions regarding real estate in their 2016 Mutual Evaluation Report.

We are very pleased that Anne Marie Minogue of Navigant will be joining us on the panel. The real estate industry operates differently in different states and efforts to enhance AML and CFT supervision and enforcement will need to reflect this complexity. RESPRO members include a broad range of industry participants that will be affected by further actions by FinCEN so we are looking forward to the discussion.Beautiful Swimming Pool at an Estate Home

 

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Earlier this week, we blogged about how the United States recently declared the Philippines to be a “major money laundering country.”  On the same day of our post, March 7, the European Parliament (EP) issued a Report which describes the United States as a growing haven for tax evasion and money laundering.  Specifically, the Report concludes that the United States “is seen as an emerging leading tax and secrecy haven for rich foreigners. By resisting new global disclosure standards, it provides an array of secrecy and tax-free facilities for non-residents at federal and state levels, notably in Nevada, Delaware, Wyoming, and South Dakota.” Continue Reading European Parliament: The U.S. is a Haven for Tax Cheats and Money Launderers

FinCEN announced today that it is renewing the existing Geographical Targeting Orders (GTOs) issued in July 2016 that require all title insurance companies to identify and report on the natural persons behind shell companies that make cash-only purchases of high-end real estate in six major metropolitan markets. The renewed GTOs will be in effect from February 24, 2017 through August 22, 2017.

The initial real estate GTOs were issued to certain title insurance companies (including their subsidiaries and agents) in January 2016 for purchases in the Borough of Manhattan and Miami-Dade County. The July 2016 orders being renewed today expanded the scope of the GTOs to cover all title insurance companies and to include numerous counties in six major metropolitan areas.

The renewal of the GTOs was anticipated. In today’s new release, FinCEN noted that it “has found that 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.”

As highlighted in our 2016 Year in Review, FinCEN has increased its focus on AML risks in real estate. We expect FinCEN to further expand their supervisory and enforcement activity in the real estate market, as recommended by the FATF in their 2016 Mutual Evaluation Report.

2016 was a busy year for developments in Anti-Money Laundering (AML), the Bank Secrecy Act (BSA), the criminal money laundering statutes, forfeiture, and related issues. In part one of our year-in-review, we discuss six key topics:

  • The Panama Papers and its spotlight on the United States as a potential money laundering haven

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 One).

As part of the U.S. Treasury Department’s ongoing efforts to prevent possible bad actors from using U.S. companies to conceal money laundering, tax evasion, and other illicit financial activities, FinCEN issued, on May 11, 2016, a final rule to strengthen the customer due diligence (CDD) efforts of “covered financial institutions.” This was one of the most important, if not the most important, AML developments in 2016. Covered institutions have until May 11, 2018, to comply with the new CDD rule, which requires covered financial institutions, including banks, federally insured credit unions, broker-dealers, mutual funds, futures commission merchants, and introducing brokers in commodities, to identify the natural persons that own and control legal entity customers—the entities’ “beneficial owners.”

Continue Reading 2016 Year in Review: FinCEN Finalizes Regulations Regarding Customer Due Diligence

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 identified “high-end real estate” transactions as an area needing priority action. In the report, the FATF assessors recommend that FinCEN take further action after analyzing the outcomes from FinCEN’s 2016 GTOs for high-end cash transactions in several U.S. real markets.

Continue Reading 2016 Year in Review: FATF Report Highlights Real Estate Risks and Mortgage Lender Compliance Shortcomings