The Western Union Company (“Western Union”) entered into a deferred prosecution agreement (“DPA”) on January 19th with the Department of Justice, based on alleged willful failures to maintain an effective AML program and the aiding and abetting of wire fraud. The DPA involved a combined $586 million monetary penalty and also involved related civil enforcement actions by the Federal Trade Commission and FinCEN. The agreement has been well-publicized and its details will not be repeated here; very generally, the DPA rests on allegations involving conduct stretching from 2004 through 2012 and an overall failure by Western Union to detect and prevent a kaleidoscope of illicit behavior by customers, from structured transactions to an international consumer fraud scheme to potential drug distribution. To be sure, this is a significant agreement – but it echoes the same general sort of facts and allegations which have become almost standard in large AML enforcement actions. However, the Western Union action contains at least one interesting wrinkle. Continue Reading The Western Union DPA and the Need to Investigate One’s Own
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
- New Customer Due Diligence rules for financial institutions from the Financial Crimes Enforcement Network (FinCEN)
- New AML regulations from the New York Department of Financial Services (NYDFS) and related NYDFS 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 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.”
In January 2016, FinCEN issued two geographic targeting orders (GTOs) aimed at combating money laundering in all-cash real estate transactions in the Borough of Manhattan, New York, and Miami-Dade County, Florida—two areas identified by FinCEN as having “a higher than average percentage of all-cash transactions.” The GTOs, which took effect in March 2016, required certain title insurance companies to identify the natural persons behind entities using cash to purchase high-end real estate—properties with a sales price of more than $1 million in Miami-Dade County and more than $3 million in Manhattan.
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.
FinCEN assessed two significant AML-related civil money penalties in 2016 against a bank and credit union. First, FinCEN and the Office of the Comptroller of the Currency announced a combined $4 million civil money penalty against Gibraltar Private Bank and Trust Company for allegedly willfully violating the AML requirements of the BSA. According to FinCEN, Gibraltar’s AML program deficiencies ultimately caused the bank to fail to timely file at least 120 SARs involving nearly $558 million in transactions from 2009 to 2013. These deficiencies also unreasonably delayed Gibraltar’s SAR reporting on accounts related to a $1.2 billion Ponzi scheme led by Florida attorney Scott Rothstein.
Second, FinCEN assessed a $500,000 civil money penalty against Bethex Federal Credit Union for alleged AML violations. Bethex was a federally chartered, low-income designated, community development credit union. In December 2015, the National Credit Union Administration liquidated Bethex, determining that it was insolvent with no prospect of returning to viable operations. According to FinCEN, Bethex failed to detect and report suspicious activity in a timely manner to FinCEN and did not file any SARs from 2008 to 2011. In 2013, due to a mandated review of prior transactions, Bethex late-filed 28 SARs. The majority of the suspicious activity involved high-volume, high-dollar transfers outside of Bethex’s expected customer base by Money Services Businesses allegedly capable of exploiting Bethex’s AML weaknesses. Most of those SARs were allegedly inadequate and contained short, vague narratives encompassing a broad summary of multiple and unrelated instances of suspicious activity.
Pursuant to Section 311 of the of the USA Patriot Act, FinCEN is authorized to designate foreign financial institutions as being “of primary money laundering concern” and to take any of five “special measures” against institutions so designated. FinCEN can impose the most severe, fifth special measure—allowing it to prohibit or restrict domestic financial institutions from opening or maintaining correspondent accounts for designated foreign financial institutions—only by issuing a regulation under the Administrative Procedure Act (APA). Ongoing litigation surrounding a Section 311 designation implicates the important question of how much FinCEN must explain itself under the APA, and the extent to which FinCEN must provide objective comparative benchmarks—such as the practices of other financial institutions—when it concludes that an institution has engaged in an unacceptably high degree of suspicious transactions.
On July 22, 2014, FinCEN issued a Notice of Finding designating FBME Bank Ltd., a Tanzanian- chartered bank operating primarily out of Cyprus, as an institution of primary money laundering concern based on its alleged involvement in money laundering and other illicit activity. FinCEN later promulgated a final rule imposing the special measure. Before the rule took effect, FBME brought suit against FinCEN seeking an order declaring the final rule unlawful and permanently enjoining its enforcement. FBME alleged, inter alia, that FinCEN violated the APA by failing to give FBME sufficient notice of the rule’s factual and legal basis and had acted arbitrarily and capriciously by failing to properly consider alternative measures against FBME.
Because the gaming industry has been known to attract some bad actors who attempt to use its financial services to conceal or transfer illicit wealth, AML compliance remains a key concern in this growing business sector.
Three significant 2016 enforcement actions emphasized that the gaming industry is particularly relevant to FinCEN’s focus on the importance of cultivating a culture of robust AML/BSA compliance within financial institutions. These enforcement actions also suggest that some segments of the gaming industry are still in the process of attaining a fully mature AML compliance culture.
The Financial Action Task Force (FATF) highlighted in its December 2016 Mutual Evaluation Report on the United States’ Measures to Combat Money Laundering and Terrorist Financing the “excellent results” in compliance and supervision in the U.S. gaming industry during the period of 2007 to 2016. The report noted that efforts by regulators and the gaming industry have led to enhanced AML and Combating the Financing of Terrorism (CFT) compliance. The assessors specifically mentioned the efforts of the American Gaming Association (AGA), including its study, Investing in America’s Financial Security: Casinos’ Commitment to AML Compliance. The FATF report also included several recommended actions related to gaming.