Alleged Illicit Activity Included Transactions Promoting North Korea’s Missile Program and an Institutional Commitment to Laundering Money

On February 13, 2018, FinCEN announced that it had proposed a special measure naming ABLV Bank, AS (“ABLV”) an institution of primary money laundering concern pursuant to Section 311 of the USA Patriot Act.  We previously have blogged about FinCEN’s powers pursuant to Section 311 of the U.S. Patriot Act to designate institution “of primary money laundering concern” and impose a special measure which effectively cuts off the bank’s access to the U.S. financial system by requiring U.S. institutions as well as foreign institutions that create an indirect link between the foreign institution and the U.S. to sever ties with the designated bank.

Finding that ABLV was a foreign financial institution of primary money laundering concern, FinCEN proposed a prohibition under the fifth special measure restricting domestic financial institutions from opening or maintaining correspondent accounts with or on behalf of ABLV. FinCEN stated that ABLV executives, shareholders, and employees have institutionalized money laundering as a pillar of the bank’s business practices by orchestrating money laundering schemes, soliciting high-risk shell company activity that enables the bank and its customers to launder funds, maintaining inadequate controls over high-risk shell company accounts, and seeking to obstruct enforcement of Latvian anti-money laundering and combating the financing of terrorism (AML/CFT) rules in order to protect these business practices.  Indeed, included in the illicit financial activity were transactions for parties connected to the U.S. and U.N.-designated entities, some of which are involved in North Korea’s procurement or export of ballistic missiles.

ABLV shot back last Thursday stating that the allegations were based “on assumptions and information that is currently unavailable to the bank,” but that they were “continuing check into these allegations” and were open to cooperation with U.S. authorities.  As a result of FinCEN’s finding, Monday morning, the European Central Bank (“ECB”) halted all payments by ABLV pending further investigation into the allegations set forth in FinCEN’s Notice of Proposed Rulemaking (“NPRM”). Continue Reading FinCEN Imposes Section 311 Fifth Special Measure on Latvian Bank ABLV

FinCEN recentlty announced entry of a $2 million assessment against Lone Star National Bank, a private bank operating out of Texas, for the bank’s allegedly willful violations of the Bank Secrecy Act (“BSA”) and inadequate Anti-Money Laundering (“AML”) monitoring programs.  The primary violations relate to Lone Star’s alleged failure to comply with due diligence requirements imposed by Section 312 of the USA PATRIOT Act in establishing and conducting its correspondent banking relationship with a Mexican bank.  As a result of Lone Star’s insufficient due diligence and AML program, the Mexican bank was “allowed to move hundreds of millions of U.S. dollars in suspicious cash shipments through the U.S. financial system in less than two years.”  The FinCEN’s announcement warns that this “action underscores the dangers that institutions face when taking on international correspondence activities without properly equipping themselves” to manage the enhanced obligations that arise with such relationships.

This new FinCEN assessment underscores the continued regulatory interest in the AML risks presented by correspondent banking relationships. We therefore first will provide a brief overview of correspondent banking relationships and the enhanced regulatory attention often paid to them. Armed with this context, we then will analyze the findings and lessons learned from the Lone Star assessment, including the value touted by FinCEN of Lone Star’s efforts to cooperate with its own investigation. Further, this new assessment suggests that the U.S. government does not always present a consistent voice regarding correspondent banking relationships: although the U.S. Treasury has tried to encourage financial institutions in general to not “de-risk” and thereby terminate correspondent banking relationships, we see that enforcement agencies continue to penalize institutions in individual cases for not mitigating sufficiently the risks of correspondent banking. Continue Reading FinCEN Fines Texas Bank $2M for Alleged Failure to Vet and Monitor Mexican Correspondent Banking Relationship – But Touts Bank’s Cooperation

Second in a Three-Part Series of Blog Posts

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 — regarding the reporting of 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 suspicious activity reporting, which the Study described as often presenting little or no “operational value to active law enforcement investigations.” In this second blog post pertaining to the Study, we will discuss the current landscape of AML information sharing in the United States — which is governed by Section 314 of the Patriot Act, and which is an important component of many financial institutions’ ability to fulfill successfully their AML obligations. In the third and final blog post pertaining to the Study, we will circle back to the Study and examine its findings and proposals for an enhanced process of information sharing by financial institutions and governments in order to better fight money laundering and terrorism. Continue Reading AML Information Sharing in the U.S. – Section 314 of the Patriot Act

We were pleased to contribute an article to the May 2017 issue of Business Crimes Bulletin titled “The Growing Convergence of Cyber-Related Crime and Suspicious Activity Reporting.” Regulators and law enforcement are taking proactive steps to further leverage anti-money laundering monitoring and reporting tools in their battle with cyber attacks and cyber crimes. In-house legal and compliance teams need to be fully versed in the latest Financial Crimes Enforcement Network (FinCEN) and bank regulatory guidance on cyber-related crimes and have the right professionals available to assist them with these matters.

Cyber-related crimes increasingly are making headlines across the globe as cyber attacks and other cyber incidents grow in intensity, volume and sophistication against government, political and business targets. The motives of attackers are as varied as their methods, but there is clearly an increasing number of attacks and other illegal activity motivated by financial gain against businesses, including financial institutions. Recent regulatory developments reveal that that illegal cyber activity has become more relevant to the fight against money laundering and terrorist financing as well.

Click here to read the full article.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch.

Reprinted with permission from the May 2017 issue of Business Crimes Bulletin.
© 2017 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.

 

 

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.

Continue Reading 2016 Year in Review: District of Columbia District Court Again Stays Section 311 Action Against FBME Bank