Suspicious Activity Report (SAR)

On March 30, 3023, the Financial Crimes Enforcement Network (FinCEN) issued a Financial Trend Analysis focusing on business email compromise (BEC) trends and patterns in the real estate sector (referred to as “RE BEC”). The report is required under Section 6206 of the Anti-Money Laundering Act of 2020 (AMLA). This section of AMLA requires FinCEN

On February 27, 2023, the Financial Crimes Enforcement Network (FinCEN) in conjunction with the United States Postal Service (USPS) issued a press release and alert concerning the “national surge in check fraud schemes targeting the U.S. Mail.”  In what FinCEN Acting Director Himamauli Das called a “disturbing trend,” criminals are increasingly stealing checks from the U.S. Mail and USPS mail carriers—sometimes by force—and using the personal information contained therein to commit identity theft or other crimes.

Continue Reading  FinCEN and USPS Issue Alert on Mail-Theft Check Fraud and SAR Filing Instructions

On January 25, the Financial Crimes Enforcement Network (“FinCEN”) issued an “Alert on Potential U.S. Commercial Real Estate Investments by Sanctioned Russian Elites, Oligarchs, and Their Proxies” (the “Alert”).  The Alert defines “commercial real estate,” which the Alert refers to as “CRE,” as “property that is used for investment or income-generating purposes rather than as a residence by the owner.”  The Alert “specifically highlights sanctions evasion-related vulnerabilities in the CRE sector and is based on a review of Bank Secrecy Act (BSA) reporting indicating that sanctioned Russian elites and their proxies may exploit them to evade sanctions.”

The Alert seeks to assist financial institutions with identifying potential sanctions evasion activity in the CRE sector by providing potential red flags and typologies related to this activity.  As we discuss, the Alert also may represent a step towards BSA regulations for the CRE sector.

Continue Reading  Russia Sanctions Evasion and Commercial Real Estate: An Alert

The Financial Crimes Enforcement Network (FinCEN) issued on January 13, 2023 an alert (the “Alert”) to financial institutions regarding the detection of financial activity related to human smuggling along the U.S. southwest border (“SW border”). The Alert builds upon FinCEN’s prior 2020 and 2014 human smuggling and human trafficking advisories in order to provide trends and typologies specifically related to human smuggling along the SW border. It also provides red flag indicators regarding transactions potentially related to human smuggling.

The Alert effectively lays out the breadth of the problem.  Effectively detecting and reporting human smuggling and trafficking, however, can be difficult, given the extensive use of cash.

Continue Reading  FinCEN Issues Alert on Human Smuggling and Trafficking Along the Southwest Border:  Methodologies, Typologies and Red Flags

The Financial Crimes Enforcement Network (“FinCEN”) issued on December 22 a Financial Trend Analysis regarding Bank Secrecy Act (“BSA”) filings during the period of March to October 2022 (the “Report”) reflecting financial activity by Russian oligarchs the time of Russia’s unprovoked military invasion of Ukraine. This publication also refers to three prior alerts issued by FinCEN highlighting red flags on Russian oligarchs, high-ranking officials, and sanctioned individuals, on which we blogged here, here, and here.  FinCEN published the Report pursuant to the Anti-Money Laundering Act’s requirement that FinCEN periodically publish threat pattern and trend information derived from BSA filings.

Overall, FinCEN found that BSA data filed on financial transactions of Russian oligarchs, high-ranking officials, sanctioned individuals, and their family members in 2022 showed transactional patterns indicative of corruption and sanctions evasion, including:

  • the movement or transfer of funds or ownership of assets and trusts;
  • the purchase of high-value goods or property; and
  • changes in financial flows with links to property or companies in the United States.

Continue Reading  Russian Oligarchs and Suspicious Financial Flows: A FinCEN Analysis

Report Previews Potential Implications for the United States

The European Commission (“Commission”) recently released its 2022 Supranational Risk Assessment Report (“SNRA Report”) to the European Parliament and Counsel regarding the “risk of money laundering and terrorist financing affecting the internal market and relating to cross-border activities.”  The SNRA Report analyzes, on a broad scale, money laundering and terrorism financing risks and proposes a plan of action to address them.  The Report also examines more specifically “sectors or products where relevant changes have been detected.” 

The SNRA Report flags the “Gambling Sector” as a “high risk” area of Anti-Money Laundering (“AML”) and Countering the Financing of Terrorism (“CFT”) concern, with a particular focus on online gambling.  According to the Commission, online gambling presents a particularly high AML/CFT risk due to factors such as “the non-face-to face element, [and] huge and complex volumes of transactions and financial flows.”  The potential use of e-money and virtual currencies, as well as the emergence of unlicensed online gambling sites, exacerbates this risk.

As the European Union (“EU”) considers how to tackle the potential risks of online gambling, the United States is simultaneously grappling with the rapid expansion of online gambling and online sports betting in particular.  Before May 2018, when the Supreme Court struck down a 1992 federal law that effectively banned commercial sports betting in most states, Nevada was the only state with legalized sports betting in the United States.  Although California ballot Proposition 27, which would have legalized online and mobile sports betting in California, failed to pass during last week’s national and state elections, more than 30 states still have legalized some form of sports betting, and there is politial pressure to continue to expand online gambling and other forms of gaming.  As Americans jockey for the immense potential receipts that the expansion of online gambling can bring, it may be worth taking a page out of the EU’s book in order to consider the potential money laundering and terrorist financing risks that can accompany it.

Continue Reading  European Commission Highlights Online Gambling’s Money Laundering Risks

The “Highlights” — To Russia, With Crypto

The Financial Crimes Enforcement Network (“FinCEN”) issued on November 1 a Financial Trend Analysis regarding ransomware-related Bank Secrecy Act (“BSA”) filings during the second half of 2021 (the “Report”).  This publication follows up on a similar ransomware trend analysis issued by FinCEN regarding the first half of 2021, on which we blogged here.  

In the most recent analysis, FinCEN found that both the number of ransomware-related Suspicious Activity Reports (“SAR”) filed, and the dollar amounts at issue, nearly tripled from 2020 to 2021.  The notable takeaways from the Report include:

  • Ransomware-related SARs were the highest ever in 2021 (both in number of SARs and in dollar amounts of activity reported).
  • Ransomware-related SARs reported amounts totaling almost $1.2 billion in 2021.
  • Approximately 75% of ransomware-related incidents between June 2021 and December 2021 were connected to Russia-related ransomware variants.

The Report, which stated that the majority of these ransomware payments were made in Bitcoin, serves as a particular reminder to cryptocurrency exchanges of their role in both identifying and reporting ransomware-related transactions facilitated through their platforms.  The Report stresses that SAR filings play an essential role in helping FinCEN identify ransomware trends.

Continue Reading  FinCEN Reports Staggering Increase in Reported Ransomware Attacks

Actions Highlight Risky Mix of Sanctions Law, Inadequate Transaction Monitoring and Dealing with Anonymity-Enhanced Cryptocurrencies

The Office of Foreign Assets Control (“OFAC”) and the Financial Crimes Enforcement Network (“FinCEN”) announced on October 11 simultaneous settlements with Bittrex, Inc. (“Bittrex”), a virtual currency exchange and hosted wallet provider. Under the OFAC settlement, Bittrex has agreed to pay $24,280,829.20 to settle its potential civil liability for 116,421 alleged violations of multiple sanctions programs. Under the FinCEN consent order, Bittrex agreed to pay a civil penalty of $29,280,829.20 for alleged anti-money laundering (“AML”) violations under the Bank Secrecy Act (“BSA”). FinCEN has agreed to credit Bittrex’s payment to OFAC against its penalty because it found that the alleged BSA violations “stem from some of the same underlying conduct”; thus, Bittrex’s total payments to the two regulators come to $29,280,829.20. 

According to the Department of the Treasury dual press release, the two settlements represent the first parallel enforcement actions by FinCEN and OFAC in the virtual currency and sanctions space. Also, it is OFAC’s largest virtual currency enforcement action to date. To further highlight the importance of the settlements, the press release quotes the OFAC Director Andrea Gacki and FinCEN Acting Director Himamauli Das, both sternly warning operators in the same environment as Bittrex to implement effective AML compliance and sanction screening programs.

It is conceivable that Bittrex, for years now, has been on notice that federal and state regulators are closely watching and expecting more comprehensive risk assessment programs and procedures from businesses transacting with virtual currency. As we previously blogged here, in 2019 the New York Department of Financial Services (“NYDFS”) denied Bittrex’s application for a Bitlicense, citing: “deficiencies in Bittrex’s BSA/AML/OFAC compliance program; a deficiency in meeting the Department’s capital requirement; and deficient due diligence and control over Bittrex’s token and product launches.”  In its letter denying Bittrex’s application, NYDFS set forth in detail the deficiencies it found in Bittrex’s BSA/AML/OFAC compliance program, noting that Bittrex’s compliance policies and procedures “are either non-existent or inadequate.”

As we will discuss, the FinCEN consent order highlights Bittrex’s alleged failure to address adequately the overall risk environment in which it operated, including transactions involving anonymity-enhanced cryptocurrencies, or AECs.  The consent order also highlights two repeated themes in enforcement actions: lack of adequate compliance staff, and a seemingly robust written compliance policy that was not matched by an effective day-to-day transaction monitoring system.

Continue Reading  OFAC and FinCEN Settle with Bittrex in Parallel Virtual Currency Enforcements

With Guest Speaker Matthew Haslinger of M&T Bank

We are extremely pleased to offer a podcast (here) on the legal and logistical issues facing financial institutions as they implement the regulations issued by the Financial Crimes Enforcement Network (FinCEN) pursuant to the Anti-Money Laundering Act of 2020 (AMLA) and the Corporate Transparency Act

Indictment Focuses on “High Risk” Transactions Involving Mexico, Bulk Cash, and Zero SAR Filings

On September 13, the United States Attorney’s Office for the Eastern District of New York announced that defendant Hanan Ofer pleaded guilty to “failing to maintain an effective anti-money laundering program.”  Ofer and his co-defendant, Gyanendra Asre, were named in a March 2021 indictment (the “Indictment”) alleging they funneled “hundreds of millions of dollars from high-risk foreign jurisdictions” – primarily, Mexico – from 2014 to 2016, through “small, unsophisticated financial institutions” without implementing an anti-money laundering program as required by the Bank Secrecy Act (“BSA”).  Ofer and Asre were charged with failure to maintain an effective anti-money laundering (“AML”) program, failure to file (any) Suspicious Activity Reports (“SARs”), and the operation of an unlicensed money transmitting business.

As we discuss, it is a little difficult to draw clear lessons from the Indictment.  Although the DOJ press release emphasizes the eye-catching number of $1 billion, neither the press release nor the Indictment actually describe these transactions as “suspicious,” much less as involving specific illicit proceeds.  Rather, and as we discuss, the transactions are described merely as “high risk.” Thus, and although it is entirely possible that the government has access to evidence which it did not reference in the charges, the Indictment appears to rely heavily on a very process-oriented theory of prosecution:  the defendants failed to implement adequate processes to monitor and/or prevent transfers that were “high risk,” but not demonstrably related to illicit funds involving specific underlying criminality.

It is also important to acknowledge the Indictment’s allegations against both defendants for operating, apparently “on the side,” a separate unlicensed money transmitter business of their own.  Here, the allegations are more concretely severe:  the unlicensed money transmitter business “involved the transportation and transmission of funds that were known to the defendants to have been derived from a criminal offense or were intended to be used to promote and support unlawful activity.”  Although it is impossible to know, this charge presumably pressured in part Mr. Ofer to plead guilty to more process-oriented BSA charges involving the $1 billion in “high risk” transfers at other financial institutions.

Continue Reading  AML Compliance “Expert” Pleads Guilty to Failure to Maintain Effective AML Program for Over $1 Billion in High-Risk Transactions