After over a year of negotiations, the European Parliament and its executive arm, the European Council, recently agreed to an amendment to the Fourth Anti-Money Laundering Directive to include measures targeting exchange platforms for virtual currencies, such as Bitcoin, as well as prepaid cards.  These new regulations will require an increase in transparency by the trusts and trading companies to reveal the holders of virtual currency to thwart potential money laundering, tax evasion, and anonymous funding of terrorism. Primary among these regulations is a requirement to provide beneficial ownership information to authorities and “any persons that can demonstrate a legitimate interest” to access data on the beneficial owners of trusts.

This focus on beneficial ownership in regards to virtual currency is entirely consistent with the general AML regulatory efforts in the United States and around the globe over the last few years, which have emphasized heavily the need to identify the beneficial owners of financial accounts, real estate and other assets in order to attain a more transparent financial system.

The regulation adopted by the European Parliament and European Council also comes as Bitcoin’s prices surged over 1,700 percent since the start of 2017.  This outstanding growth has increased main stream interest in the virtual currency while also sounding alarm bells as some fear that Bitcoin is a bubble bound to burst.  A key part of the amendment is that access to beneficial ownership information should be provided to authorities and “any persons that can demonstrate a legitimate interest.”  Continue Reading EU Adopts Regulations Increasing Transparency in Virtual Currency Trading to Combat Money Laundering, Tax Evasion, and Terrorism Financing

Third in a Three-Part Series of Blog Posts

Many Keys to AML Information Sharing This blog focuses on suggested improvements to information sharing between financial institutions, and between financial institutions and governments, to better combat money laundering and terrorist financing. As we recently blogged, the Royal United Services Institute (“RUSI”) for Defence and Security Studies — a U.K. think tank – has released a study:  The Role of Financial Information-Sharing Partnerships in the Disruption of Crime (the “Study”).  The Study focuses on international efforts — including efforts by the United States — in reporting suspicious transactions revealing criminal activity such as money laundering and terrorist financing.  The Study critiques current approaches to Anti-Money Laundering (“AML”) reporting and suggests improvements, primarily in the form of enhanced information sharing among financial institutions and governments. In our first blog post in this series, we described some of the criticisms set forth by the Study regarding the general effectiveness of current suspicious activity reporting.  These critiques related to an ever-increasing amount of SAR filings, coupled in part with a lack a feedback by governments to the filing institutions regarding what sort of information was considered by law enforcement to be actually useful.  In our second post, we discussed the current landscape of AML information sharing in the United States, which is governed by Section 314 of the Patriot Act, and is an important component of many financial institutions’ ability to fulfill successfully their AML obligations.  This third and final blog post pertaining to the Study examines its findings and proposals for developing effective public–private financial information sharing partnerships (“FISPs”) in order to better detect, prevent, and combat money laundering and terrorist financing.  Observing that modern financial crime “operates in real time, is most often international in scale and can be highly sophisticated ad adaptive to avoid detection,” the Study generally posits that AML systems ideally should include real-time and cross-border information sharing. Continue Reading Combatting Money Laundering and Terrorist Financing Through Enhanced AML Information Sharing

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

As widely reported, the Spanish police raided last year the Madrid offices of the Chinese state-run Industrial and Commercial Bank of China (“ICBC”), the world’s biggest bank by assets. In the nearly 18 months following that raid and the numerous arrests made at that time, very little information about this money laundering investigation became known publically. That is, until Reuters recently published a lengthy article resulting from its review of “thousands of pages of confidential case submissions” and its “interviews with investigators and former ICBC employees.” The article raises numerous questions regarding the enforcement of European money laundering laws against Chinese banks operating abroad, as well as certain unique political and diplomatic considerations that may exist in those enforcement efforts. Below, we will compare these efforts with similar U.S. enforcement efforts, which are potentially gaining steam. Continue Reading High-Profile Spanish Money Laundering Investigation of Chinese Bank Raises Questions About Future of Similar U.S. Enforcement

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.

Continue Reading Damming the Funding to North Korea: Anticipatory Seizure Warrants as a Tool to Enforce Sanctions and Thwart Money Laundering Transfers

On June 29, dual trial verdicts in the Southern District of New York paved the way for the government to seize 650 Fifth Avenue, a 36-story building in Manhattan valued at up to $1 billion (“the Property”). The defendants, representing New York entities that trace their roots to Iran, were convicted of violating U.S. sanctions and money laundering. With this decision, the government can lay claim to the largest terrorism-related civil forfeiture in U.S. history and, as promised, provide the sale’s proceeds to terror victims who had previously won $5 billion in judgments against Iran for terror-related activity.

Continue Reading Lessons in Civil Forfeiture and Attachment: U.S. May Seize 650 Fifth Avenue

A Guest Blog by Greg Baer, President of The Clearing House

Today we are very pleased to welcome guest blogger Greg Baer, who will address a series of significant issues posed by a detailed paper published by The Clearing House, a banking association and payments company that is owned by the largest commercial banks and dates back to 1853.  The paper, titled A New Paradigm: Redesigning the U.S. AML/CFT Framework to Protect National Security and Aid Law Enforcement (The New Paradigm), analyzes the effectiveness of the current AML and Combatting the Financing of Terrorism (CFT) regime, identifies problems with that regime, and proposes a series of reforms to remedy them.

Gregory-Baer_7286A-PrintMr. Baer is the President of The Clearinghouse Association L.L.C. and the Executive Vice President and General Counsel of The Clearing House Payments Company L.L.C. The Clearing House Association represents the interests of The Clearing House’s commercial bank ownership on a diverse range of regulatory and legislative matters. Its affiliate, The Clearing House Payments Company, is the only private-sector ACH and wire operator in the United States, clearing and settling nearly $2 trillion in U.S. dollar payments each day, representing half of all commercial ACH and wire volume. Prior to joining The Clearing House, Mr. Baer was Managing Director and Head of Regulatory Policy at JPMorgan Chase. He previously served as Deputy General Counsel for Corporate Law at Bank of America, and as a partner at Wilmer, Cutler, Pickering, Hale & Dorr. He also served as Assistant Secretary for Financial Institutions at the U.S. Department of the Treasury, after serving as Deputy Assistant Secretary. Finally, Mr. Baer was managing senior counsel at the Board of Governors of the Federal Reserve System.

New ParadigmThe New Paradigm is the product of two closed-door symposia that convened approximately 60 leading experts in the field of AML/CFT. The group included senior former and current officials from law enforcement, national security, bank regulation and domestic policy; leaders of prominent think tanks in the areas of economic policy, development, and national security; consultants and lawyers practicing in the field; FinTech CEOs; and the heads of AML/CFT at multiple major financial institutions. This blog post takes the form of a Q & A session, in which Mr. Baer responds to questions posed by Money Laundering Watch and explains the main positions set forth in The New Paradigm, and also replies to some potential counter-arguments. We hope you enjoy this discussion of these important issues. Continue Reading The New Paradigm: Proposed Reforms of the AML/CFT Regime by The Clearing House

IED Bomb still lifeOn March 24, 2017, the U.S. Department of Justice unsealed an indictment charging Kassim Tajideen, an alleged prominent financial supporter of the Hizballah terror organization, with evading U.S. sanctions and conspiring to commit money laundering.  Tajideen, of Beirut, Lebanon, was arrested in Morocco earlier this month and has made his initial appearance in federal court in Washington, D.C.

According to the government, Tajideen, through his multi-billion dollar network of businesses based in Lebanon and Africa, contributed tens of millions of dollars to Hizballah. For this reason, in May 2009, the Department of Treasury’s Office of Foreign Assets Control (“OFAC”) designated Tajidden as a Specially Designated Global Terrorist (“SDGT”).  This designation makes it illegal for U.S. companies to do business with Tajideen or any entity that he controls.  More broadly, it is illegal for U.S. companies to transact business with any entities or individuals on OFAC’s blacklists.

The indictment charges Tajideen with one count of conspiracy to evade U.S. sanctions, specifically the International Emergency Economic Powers Act (“IEEPA”) and the Global Terrorism Sanctions Regulations, by transacting business with three U.S. businesses, referred to only as Business A, Business B and Business C, and by concealing from OFAC that he was benefitting from these transactions. Tajideen is also charged with seven counts of unlawful transactions with a SDGT, and one count of conspiracy to commit money laundering.

According to the indictment, Tajideen heads a large-scale commodity distribution business based primarily in Lebanon, the United Arab Emirates and Angola, but which operates throughout the world, including in the U.S. The business utilized what the government says was “a web of vertically integrated companies, partnerships and trade names.” The indictment further alleges that Tajideen and others engaged in a scheme to do business with U.S. companies while concealing Tajideen’s involvement.  As part of that scheme, between approximately July 2013 and the present, Tajideen, his employee, codefendant Imad Hassoun, and other unnamed co-conspirators illegally caused at least 47 wire transfers totaling over $27 million to be sent to entities in the U.S. for the purchase of frozen poultry and other items.  These payments caused the U.S. entities to illegally ship goods from the U.S. without obtaining the proper licenses from the U.S. Department of the Treasury. The count of conspiracy to commit money laundering, in violation of 18 U.S.C. § 1956(h), charges that Tajideen and others conspired to both promote and conceal the conspirators’ illegal business transactions with U.S. persons through numerous wire transfers from bank accounts held by Tajideen’s companies in the United Arab Emirates to bank accounts held within the U.S. in order to pay for transactions involving Businesses A, B and C.

It has been reported that the investigation is continuing. Specifically, the government wants to determine whether Businesses A, B or C knowingly did business with Tajideen after he was designated a SDGT. Tajideen is alleged to have restructured his business empire after the designation and to have created new trade names in order to evade the sanctions and continue doing business with U.S. companies.  But Tajideen’s alleged deception may not save Businesses A, B and C from the government’s crosshairs.  Companies are responsible for conducting due diligence to determine whether entities and individuals with whom they do business – including middlemen, corporate shells and newly formed firms – are linked to individuals or entities on OFAC’s blacklists.  So while this indictment shows that the U.S. is taking aggressive action against Hizballah, it also underscores the need for U.S. companies to have robust export control compliance programs so that they can ensure they are not doing business with terrorists.

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FDICIn his remarks during last week’s launch of Case Western Reserve School of Law’s Financial Integrity Institute, FDIC Chairman Martin J. Gruenberg spoke on the historical context of today’s BSA/AML regulatory framework and the FDIC’s role in promoting and maintaining financial integrity.  The Financial Integrity Institute describes its mission as seeking “to advance financial integrity globally by conducting and promoting at the highest standards research, education and professional excellence in anti-money laundering, anti-corruption, targeted sanctions and countering the financing of terrorism and international tax evasion policies and practices.”

Chairman Gruenberg recounted the legislative history of money laundering and terrorist financing laws and reminded us that the BSA was originally developed to address the lack of data needed by law enforcement to prosecute financial crimes. The regulatory framework has evolved over time in response to continual technological advancements and the increasing volume and sophistication of financial crime being perpetrated. “[W]hat began as currency transaction reporting requirements to identify citizens evading tax payments,” he said, “has evolved into required BSA/AML compliance programs, suspicious activity monitoring, and new reporting requirements to identify money laundering and terrorist financing, among other financial crimes.” The Chairman also observed that anti-money laundering efforts continue to take on an increasingly international aspect, and that evolving technologies constitute a “double-edged sword” because they can represent new means to either commit, or detect and prevent, financial crime.

In his speech, the Chairman also touched on the FDIC’s supervisory program. He stated that the FDIC evaluates not only an institution’s compliance with the BSA but also whether an institution has established a “culture of compliance.” He further remarked that the BSA/AML compliance program failures seen by the FDIC “often reflect a failure on the part of an institution’s directors or senior management to establish a tone of compliance that permeates the institution.”

We previously have blogged about the regulatory focus on the importance of cultivating a culture of robust BSA/AML compliance within financial institutions. Chairman Gruenberg’s remarks suggest that this focus is not likely to diminish in the near future. As such, it is prudent for financial institutions to keep efforts to develop a culture of compliance top of mind. In particular, the Chairman noted that the FDIC looks for whether directors demonstrate strong corporate governance and have a general understanding of the BSA/AML regulations and the risks posed to their institution, and whether senior management and employees understand the importance of BSA/AML compliance.

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