Internal Revenue Service (IRS)

Ballard Spahr is very pleased to host on December 17, 2018 at noon in our Philadelphia office a CLE program for the gaming industry and associated counsel to participate in a panel discussion with speakers from the Internal Revenue Service (IRS) on the latest industry trends in BSA/AML compliance and examination.

Please join us in person to hear directly from the government about related gaming enforcement actions and lessons learned, and to discuss the ongoing importance of Suspicious Activity Reports, Currency Transaction Reports, and “Know Your Customer” due diligence.  I will have the pleasure of moderating a select panel from IRS Criminal Investigation and the IRS Bank Secrecy Act group, including:

  • Mark Young, Supervisory Special Agent, IRS – Criminal Investigation
  • Marita Gehan, Special Agent, IRS – Criminal Investigation
  • Angelo Horiates, III, Special Agent, IRS – Criminal Investigation
  • David Witiak, Revenue Agent, IRS – Small Business/Self-Employed Division

We greatly appreciate the IRS taking the time to participate in this program.  Direct communication between the government and representatives of the regulated industry always proves to be useful and important. We often have blogged on the many BSA/AML issues facing the gaming industry, including here, here and here.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. To learn more about Ballard Spahr’s Anti-Money Laundering Team, please click here.

The Treasury Inspector General for Tax Administration, or TIGTA, issued last month a Report, entitled The Internal Revenue Service’s Bank Secrecy Act Program Has Minimal Impact on Compliance, which sets forth a decidedly dim view of the utility and effectiveness of the current Bank Secrecy Act (“BSA”) compliance efforts by the Internal Revenue Service (“IRS”).  The primary conclusions of the detailed Report are that (i) referrals by the IRS to the Financial Crimes Enforcement Network (“FinCEN”) for potential Title 31 penalty cases suffer lengthy delays and have little impact on BSA compliance; (ii) the IRS BSA Program spent approximately $97 million to assess approximately $39 million in penalties for Fiscal Years (FYs) 2014 to 2016; and (iii) although referrals regarding BSA violations were made to IRS Criminal Investigation (“IRS CI”), most investigations were declined and very few ultimately were accepted by the Department of Justice for prosecution.

Arguably, the most striking claim by the Report is that “Title 31 compliance reviews [by the IRS] have minimal impact on Bank Secrecy Act compliance because negligent violation penalties are not assessed.”

A primary take-away from the Report is that an examination program lacking actual enforcement power is, unsurprisingly, not very effective.  The Report also highlights some potential problems which beset the IRS BSA Program, which include lack of staffing, lack of planning and coordination, and delay. Although the Report’s findings clearly suggest that what the IRS BSA Program really needs are resources and enhanced enforcement power, the repeated allusions in the Report to a certain purposelessness of the current BSA examination regime nonetheless might help fuel the current debate regarding possible AML/BSA reform, with an eye towards curbing regulatory burden.

The Report made five specific recommendations to the IRS for remedial steps. We will focus on four of those recommendations, and the findings upon which they rest:

  • Coordinate with FINCEN on the authority to assert Title 31 penalties, or reprioritize BSA Program resources to more productive work;
  • Leverage the BSA Program’s Title 31 authority and annual examination planning in the development of the IRS’s virtual currency strategy;
  • Evaluate the effectiveness of the newly implemented review procedures for FinCEN referrals; and
  • Improve the process for referrals to IRS CI.

Continue Reading U.S. Treasury Report: IRS BSA Program “Has Minimal Impact on Compliance”

Conduct Performed Without Knowledge Still Can Lead to the Most Serious Penalties

Under the Bank Secrecy Act (“BSA”), the most onerous civil penalties will be applied for “willful” violations. That mental state standard might sound hard for the government to prove.  For example, in criminal and civil tax fraud cases under the Internal Revenue Code, “willfulness” is defined to mean a voluntary and intentional violation of a known legal duty – a very demanding showing. But as we will discuss, two very new court opinions discussing a required BSA filing – a Form TD F 90-22.1, or Report of Foreign Bank and Financial Accounts, otherwise know as a FBAR – remind us that, under the BSA, a “willful” violation does not require proof of actual knowledge. A “willful” BSA violation only needs to be reckless, and the government can prove it through the doctrine of “willful blindness” or “conscious avoidance.”

The fact that courts in civil FBAR cases have been holding that “willfulness” can mean “just recklessness” is not a new development, and it is well known to those practicing in the tax fraud and tax controversy space. This blog post will not attempt to delve into the long-running offshore account enforcement campaign that has been waged by the IRS and the DOJ; the related case decisions; or the related voluntary disclosure programs for offshore accounts (for those interested in this fascinating but complicated topic, the Federal Tax Crimes blog is one of many excellent resources). Rather, the point of this post is that the case law now being made in the FBAR and offshore account context will have direct application to more traditional Anti-Money Laundering (“AML”)/BSA enforcement actions, because the civil penalty statute being interpreted in the FBAR cases is the same provision which applies to claimed failures to maintain an adequate AML program and other violations of the BSA.  Thus, the target audience of this post is not people involved in undisclosed offshore bank account cases, but rather people involved in day-to-day AML compliance for financial institutions, who may not realize that some missteps may be branded as “willful” and entail very serious monetary penalties, even if they were done without actual knowledge.  This may be news to some, and it underscores in particular the risks presented by one the topics that this blog frequently has discussed: the potential AML liability of individuals. Continue Reading The BSA Civil Penalty Regime: Reckless Conduct Can Produce “Willful” Penalties

Second Part of a Two-Part Series

As we blogged yesterday, British Columbia’s (“B.C.”) Attorney General David Eby recently released an independent and very detailed report examining money laundering in B.C.’s gaming industry and providing 48 recommendations to combat the problem. See Peter M. German, QC, Dirty Money: An Independent Review of Money Laundering in Lower Mainland Casinos conducted for the Attorney General of British Columbia (Mar. 31, 2018) (“German Report”).  As we noted yesterday, when discussing the U.S. regulatory system, the German Report favorably cites the Nevada Gaming Commission and Nevada Gaming Control Board, whose Enforcement Division “acts as a first line of defence against organized crime and bulk cash buy-ins[,]” and further observes that the federal Financial Crimes Enforcement Network, “[i]n partnership with Internal Revenue Service, acts as the enforcement arm for most money laundering issues.”

The U.S.’s more robust, streamlined AML regulatory regime, although hardly perfect, stands in stark contrast to the dysfunction alleged in the German Report that plagues B.C.’s current framework. In this post, we describe the U.S. AML regulatory regime for the gaming industry, and the recent enforcement actions which it has produced.  Although the pace of AML enforcement has been somewhat sporadic, it appears to be increasing over time in regards to the gaming industry.  Certainly, attention by regulators — as well as by the industry itself — to AML/BSA compliance has increased over the last several years.

Continue Reading The U.S. Casino and Gaming Industry: AML/BSA Regulation and Enforcement

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

I am honored to be part of a panel on March 1, 2018 at the Florida Tax Institute in Tampa, Florida regarding potential money laundering risks, reporting obligations and related ethical issues facing U.S. tax professionals with foreign clients bringing money and assets into the United States.  The panel, entitled Working with Inbound Investors & Businesses – Some Things You May Not Think About May Hurt You, will be moderated by Fred Murray of the University of Florida Levin College of Law and also will include attorneys Jeffrey A. Neiman, A. Brian Phillips and Shawn P. Wolf.

This is a key topic with real-world implications. We previously have blogged about potential AML and money laundering issues facing U.S. lawyers, who are under increasing scrutiny in light of: evolving international standards on professionals as AML gate keepers; global criticisms of the United States as a possible haven for money launderers and tax cheats; and scandals — such as the Panama Papers — involving legal professionals as the alleged facilitators of laundering and tax evasion by their clients.

Specifically, both the Financial Action Task Force (“FATF”) and the European Parliament have called for U.S. lawyers to meet higher standards in performing due diligence to detect clients’ potential money laundering, and found U.S. lawyers to be “non-compliant” with entity transparency standards. Further, the U.S. Congress has tried to enact legislation over the years to address the issue of beneficial ownership and the role of lawyer (see our discussion of the Corporate Transparency Act here). More recently, and as we have blogged, 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.  The panel should be interesting.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. To learn more about Ballard Spahr’s Anti-Money Laundering Team, please click here.

IRS Will Obtain Identifying Information Regarding Clients Who Conducted Any Transaction Equal to $20,000 or More

Last week, a federal magistrate judge in the Northern District of California granted in part and denied in part a motion by the IRS to enforce a “John Doe” summons served on Coinbase, Inc., which operates a virtual currency wallet and exchange business headquartered in San Francisco. As we have blogged, the court granted last year the IRS’s application to serve the summons on Coinbase, which then resisted and moved to quash. The recent ruling paves the way for potential criminal or civil tax investigations involving Coinbase customers, as well as potential money laundering investigations.  The ruling also indicates that the IRS might be able to seek more information from Coinbase about specific individuals as its investigation progresses.

Needless to say, the semi- or pseudo-anonymity offered by virtual currency – traits which historically have made virtual currency attractive to some of its users – are the same traits which have made the IRS and other law enforcement agencies and regulators intensely interested in the use of virtual currency. Although the use of virtual currency generally may cloak the user and create practical problems for investigators, the Coinbase action demonstrates that virtual currency is not truly anonymous in the face of a focused law enforcement inquiry. Continue Reading Court Enforces — Partially — IRS “John Doe” Summons Served on Virtual Currency Exchanger