Last Thursday, FinCEN Deputy Director Jamal El-Hindi appeared at the 20th annual Anti-Money Laundering (AML) and Financial Crimes Conference hosted by the Securities Industry and Financial Markets Association (SIFMA) in New York City. His prepared remarks covered three main topics at the intersection of the securities industry and FinCEN’s enforcement goals: (i) AML compliance trends and current challenges; (ii) the value of Bank Secrecy Act (BSA) filing data; and (iii) the current regulatory landscape.

El-Hindi not surprisingly stressed transparency and information sharing, the value of BSA reporting data, and the need for legislation regarding the collection of beneficial ownership at the corporate formation stage. El-Hindi also suggested – perhaps without the complete agreement of his audience – that regulators tend to under-regulate, rather than over-regulate. He stated: “But in an area such as ours where we have developed a strong partnership with industry and where we believe that you are just as vested in our mission to thwart bad actors as we are, it is important for us to use our authorities fully.”

His remarks are particularly relevant given the 2020 Examination Priorities recently issued by the SEC’s Office of Compliance Inspections and Examinations (OCIE), which states that the OCIE will prioritize examining broker-dealers and investment companies “for compliance with their AML obligations in order to assess, among other things, whether firms have established appropriate customer identification programs and whether they are satisfying their SAR filing obligations, conducting due diligence on customers, complying with beneficial ownership requirements, and conducting robust and timely independent tests of their AML programs.” Continue Reading FinCEN Stresses Transparency, BSA Filing Data, and Perils of “Under- Regulating” to Securities Industry

AML Scandals Seem to Inevitably Spawn Investor Lawsuits

As we recently blogged, Westpac, Australia’s second-largest retail bank, has been embroiled in a scandal arising from approximately 23 million alleged breaches of Australia’s anti-money laundering/countering terrorist financing (“AML/CTF”) laws and regulations involving nearly $12 billion in transactions. The scandal broke on November 20, 2019 when the Federal Court of Australia filed a Statement of Claim (“SOC”) detailing how Westpac allegedly failed to monitor transactions involving its correspondent banks that, in turn, facilitated child exploitation abroad.

In this post, we discus the Westpac scandal, its massive consequences and the details of follow-on private securities litigation, including in U.S. courts. As we further discuss, the same legal threats continue to bedevil Dankse Bank, the center of the world’s largest AML scandal. Continue Reading Investors Bring 10b-5 Action Against Westpac Over Money Laundering Scandal

Government Suggests that Unusual Pleas are Just the Tip of an Iceberg

Chinese law generally prohibits its citizens from converting more than $50,000 in Chinese yuan into foreign currency in a year.  On Monday, two men living in Las Vegas pleaded guilty in federal district court in the Southern District of California to operating an unlicensed money transmitter business, in violation of 18 U.S.C. § 1960.  Allegedly, they ran a scheme in which they helped clients circumvent this Chinese law — as well as the anti-money laundering programs of U.S. financial institutions — by converting electronic funds in China into hard currency in the United States, which the clients then used to gamble at casinos.

The case reflects the continuing ingenuity employed by individuals to use expanding technologies to circumvent currency controls and money laundering laws.  The case is also interesting because the defendants allegedly ran their scheme with the help of insiders at the casinos, who provided assistance in exchange for a cut of the cash. Continue Reading Guilty Pleas Highlight Illicit Funneling of Chinese Cash to Casinos

On January 29, 2020, the U.S. Government Accountability Office (GAO) publicly released the results of a study which the GAO conducted on trade-based money laundering, or TBML, entitled “Countering Illicit Finance and Trade: U.S. Efforts to Combat Trade-Based Money Laundering” (the Study). The Study – sent upon request to the U.S. Senate Subcommittee on Crime and Terrorism – was commissioned in January 2019 after the U.S. Department of Treasury issued a related report, entitled the 2018 National Money Laundering Risk Assessment, identifying TBML as one of the most commonly-used, and one of the most difficult to detect, methods of money laundering.

According to the Study, U.S. law enforcement agencies believe that the increase in TBML is due, ironically in part, to improved compliance by U.S. financial institutions with requirements under the Bank Secrecy Act (BSA) and related Anti-Money Laundering (AML) regulations. For example, the Study noted a downturn in reported cash seizures throughout the United States, suggesting that international crime has pivoted to utilizing TBML schemes to keep the U.S. government’s hands out of the illegal till. In other words, as one rat hole gets closed, the rats creatively create other holes. This is a familiar story in law enforcement, across all spectrums.

The Study describes the particular vulnerabilities that U.S. financial institutions experience with monitoring trade-based transactions as opposed to other day-to-day activity. The Study further notes that this problem has not gone unnoticed, and suggests that there is hope that developing tools and technologies will stave off those who seek to use U.S. systems for TBML. The Study further draws upon earlier reports, described herein, to acknowledge that the problem is not new. Continue Reading Trade-Based Money Laundering: GAO Report Stresses Enforcement Challenges

Note to Government Personnel: Don’t Disclose SARs

This week, major developments unfolded in the cases against two former federal government employees for their respective roles in disclosing Suspicious Activity Reports (“SARs”) in violation of the Bank Secrecy Act (“BSA”).

Historically, prosecutions pertaining to improper SAR disclosures have been supremely rare, so the fact that two court hearings involving this issue occurred in a single week is particularly notable. Both involve defendants allegedly acting on their own perceived sense of duty – perceptions which ran afoul of the law.

First, Natalie Mayflower Sours Edwards, a former senior advisor at the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”), pleaded guilty to one felony count of conspiring to unlawfully disclose SARs related to Paul Manafort, Richard Gates, Maria Butina, Prevezon Alexander, and the Russian Embassy to a reporter. Second, John C. Fry, a former employee of the Internal Revenue Service (“IRS”), was sentenced to five years of supervised probation and ordered to pay a $5,000 fine after similarly pleading guilty to his role in disclosing SARs to embattled attorney Michael Avenatti that related to likewise-embattled attorney Michael Cohen. Both prosecutions underscore the seriousness with which federal authorities view such disclosures. Likewise, they reflect that potentially subjective good intentions – of course – still don’t excuse violations of the carefully-crafted prohibitions in the BSA against the disclosure of SARs.

Continue Reading Key Developments in the Prosecutions for Leaks by Government Personnel of SARs Related to Michael Cohen, Paul Manafort, Richard Gates, and Others

Happy New Year! And, happy birthday to Money Laundering Watch, which is entering its fourth year.

Let’s look back2019 has been yet another busy year in the world of money laundering and BSA/AML. We are highlighting 12 of our most-read blog posts, which address many of the key issues we’ve examined during the past year — massive bank scandals; beneficial ownership; potential AML reform; virtual currency; cannabis and financial institutions; counter terrorism financing; money laundering prosecutions; and broad policy and social questions implicated by AML concerns.

We want to thank our many readers around the world who continue to make this blog such a success. The feedback we receive from financial industry professionals, compliance officers, in-house and external lawyers, BSA/AML consultants, government personnel, journalists, and others interested in this field is invaluable, and we hope you will continue to share your perspectives with us.  We pride ourselves on providing in-depth discussions of the important developments in this ever-evolving area.

We also would like to thank the other platforms that host our blog: Digital Currency & Ledger Defense Coalition, Money Laundering Bulletin, and Federal Tax Crimes.

We look forward to continuing to keep you informed in 2020.  If you would like to subscribe to Money Laundering Watch, please click here. To learn more about Ballard Spahr’s Anti-Money Laundering Team, please click here.

AMA Details Components of a Strong AML/BSA Program for the Gaming Industry

Earlier this month, the American Gaming Association (“AGA”) released an updated Best Practices for Anti-Money Laundering (“AML”) Compliance (“Best Practices Guidance”) reflecting a heightened focus on risk assessment as well as Know Your Customer/Customer Due Diligence measures for the gaming industry.  This update amends the industry’s first set of comprehensive best practices for AML compliance, issued in 2014.  At the time, the best practices were well-received by the U.S. Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”).  These updated Best Practices have drawn from recent FinCEN guidance and enforcement actions, the Treasury Department’s National Money Laundering Risk Assessment, and the Office of Foreign Assets Control’s (“OFAC”) updated compliance guidelines and provide detailed guidance regarding how the industry can continue to be “a leader in compliance.”

Continue Reading AMA Updates AML Best Practices for AML Compliance

Court Rejects Attempt by Halkbank to Enter “Special Appearance” Contesting Jurisdiction

Turkish state-owned bank Halkbank’s efforts to avoid appearing in U.S. federal court for arraignment were squashed recently in a twenty-seven-page opinion issued by the Honorable Richard M. Berman of the U.S. District Court in the Southern District of New York. The Court made clear that for a foreign entity to challenge personal jurisdiction in a criminal case, it must first accept service of the indictment against it, appear in court, and enter a plea.  This outcome differs from civil cases, in which defendants challenging personal jurisdiction can and in fact must enter a “special appearance” challenging (only) personal jurisdiction, lest they be deemed as potentially having waived the issue and accepted the jurisdiction of the court.

As we previously blogged, on October 15, 2019, the U.S. Attorney for the Southern District of New York charged Halkbank with money laundering, bank fraud, and sanctions offenses under the International Emergency Economic Powers Act, or IEEPA, arising from the bank’s alleged involvement in a multibillion-dollar scheme to evade U.S. sanctions regarding Iran. This indictment follows the 2018 conviction of its former Deputy General Manager for International Banking after a lengthy jury trial that also implicated other senior-level officials at Halkbank. The Court then issued a summons directing Halkbank to appear for arraignment on October 22, 2019, and served the summons on the law firm that had represented Halkbank in connection with the DOJ investigation of the bank.

As we will discuss, the Court’s opinion is strongly worded, and sends a definite message to foreign defendants with limited nexus to the U.S. that they still will have to appear in U.S. court to litigate jurisdiction and their claimed lack of ties to the U.S.  As we have blogged, the Department of Justice is charging foreign defendants with increasing frequency based on alleged misconduct occurring entirely outside of the U.S. — often predicating jurisdiction upon incidental financial transactions flowing through New York, often through correspondent bank accounts.  Further, the consequences of the ruling against Halkbank might be felt more keenly by some individual defendants, who — unlike entities — are subject to pretrial detention once they physically appear in the U.S. Continue Reading Federal Court Makes Clear That International Financial Institution Must Appear for Arraignment in Criminal Action

ABA Tax Fraud Panel to Discuss IRS CI and Crypto Criminals

The Internal Revenue Service – Criminal Investigation (IRS CI) has made it clear that it is focusing on the abuse of digital currencies to further tax evasion, money laundering, and other offenses. IRS-CI also has made it clear that this is an international effort, and that it is trying to partner with law enforcement agencies across the globe in order to coordinate and share investigative leads.

This is a hot topic, and we are honored that Ballard Spahr will be moderating a panel on these very same issues, at the ABA’s annual Tax Fraud/Tax Controversy Conference in Las Vegas on December 12, entitled Charging Cryptocurrency Violations—Tax Crimes or Money Laundering.  We are pleased to be joined by our wonderful panelists, Evan J. Davis, Betty J. Williams, and Ian M. Comiskey.  This is a unique conference, and we invite you to attend if you are interested in the fascinating cross-section of tax evasion and money laundering.

This blog will discuss the recent efforts by IRS-CI to “up its game” in investigating cross-border offenses committed through cryptocurrency, such as its participation in the international Joint Chiefs of Global Tax Enforcement task force. We then will discuss a recent high-profile case which exemplifies these two goals of fighting crypto-related crime and collaborating with foreign law enforcement officials to do so: the notorious “Welcome to Video” case, which led to a global takedown of a darkweb child pornography website, its administrator, and its customers. The Welcome to Video investigation, led by IRS-CI, also illustrates a key point we will discuss at the ABA conference: that cryptocurrency is only “pseudo-anonymous,” and that its protections can yield to a determined combination of modern digital forensics and old-fashioned investigative techniques. Continue Reading IRS CI Highlights International Efforts to Tackle Cryptocurrency Abuse, Money Laundering and Tax Evasion

Organization Excels at Niche Branding but Stumbles in Avoiding Enforcement

The first paragraph of the press release sums it up:

Today the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) took action against Evil Corp, the Russia-based cybercriminal organization responsible for the development and distribution of the Dridex malware.  Evil Corp has used the Dridex malware to infect computers and harvest login credentials from hundreds of banks and financial institutions in over 40 countries, causing more than $100 million in theft.  This malicious software has caused millions of dollars of damage to U.S. and international financial institutions and their customers.  Concurrent with OFAC’s action, the Department of Justice charged two of Evil Corp’s members with criminal violations, and the Department of State announced a reward for information up to $5 million leading to the capture or conviction of Evil Corp’s leader.  These U.S. actions were carried out in close coordination with the United Kingdom’s National Crime Agency (NCA).  Additionally, based on information obtained by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), the Treasury Department’s Office of Cybersecurity and Critical Infrastructure Protection (OCCIP) released previously unreported indicators of compromise associated with the Dridex malware and its use against the financial services sector.

The Department of Treasury press release is extremely detailed.  Summarized very broadly, it observes that OFAC’s designation targets 17 individuals and seven entities, including Evil Corp, its “core cyber operators, multiple businesses associated with a group member, and financial facilitators utilized by the group.”  The designation means that all property and interests in property of these persons subject to U.S. jurisdiction are blocked, and U.S. persons are generally prohibited in engaging in transactions with them.

As noted below, the U.S. government is alleging that these cyber criminals are working with the Russian government.  FinCEN and the Cybersecurity and Infrastructure Security Agency (CISA) of the Department of Homeland Security also have issued an Alert to financial institutions regarding how to try to detect, mitigate and report the presence of the pernicious Dridex malware. Continue Reading U.S. Treasury and DOJ Target “Evil Corp”