In Related Case, Federal Court Holds that Bitcoin-to-Bitcoin “Tumbler” Can Represent “Money Transmission”

On April 27, IRS CI and FBI Special Agents arrested Roman Sterlingov, a dual citizen of Russia and Sweden, for his alleged role as the founder and operator of Bitcoin Fog, a cryptocurrency “tumbler” or “mixer” aimed at concealing the source of funds. The criminal complaint and accompanying Statement of Facts, filed in the District of Columbia, alleges that over the course of 10 years, Bitcoin Fog moved more than 1.2 million bitcoin, valued (at the time of the transactions) at about $335 million. According to the government’s press release, “[t]he bulk of this cryptocurrency came from darknet marketplaces and was tied to illegal narcotics, computer fraud and abuse activities, and identity theft.”

Sterlingov allegedly founded the site while promoting it under the pseudonym Akemashite Omedetou, a Japanese phrase that means “Happy New Year.” In a post on an online Bitcoin forum, Omedetou advertised that Bitcoin Fog “[mixes] up your bitcoins in our own pool with other users,” and “can eliminate any chance of finding your payments and making it impossible to prove any connection between a deposit and a withdraw inside our service.”

Ironically, Sterlingov was identified by investigators using the very same sort of tracing that Bitcoin Fog was meant to forestall. The Statement of Facts outlines in extensive detail how Sterlingov allegedly paid for Bitcoin Fog’s domain using a now-defunct digital currency; it goes on to show a series of transactions recorded to the blockchain that identifies Sterlingov’s purchase of that currency with bitcoin. Based on tracing those financial transactions, investigators were able to identify Sterlingov’s home address and phone number, together with a Google account that hosts a document that describes how to obscure bitcoin payments – that document mirrors closely the methods Sterlingov allegedly employed to purchase the Bitcoin Fog domain.

In addition to thanking various domestic law enforcement agencies, the government’s press release highlights the international nature of the investigation by also thanking Europol and Swedish and Romanian law enforcement agencies. The criminal complaint against Sterlingov is therefore another example of IRC-CI pursuing its simultaneous goals of fighting crypto-related crime and collaborating with foreign law enforcement officials in order to do so.

Notably, this is the second case brought by the Department of Justice, Criminal Division’s Computer Crime and Intellectual Property Section, targeting virtual currency mixer operations. In United States v. Harmon, a case also being prosecuted in the District of Columbia, the defendant has similarly been charged for his alleged role in operating Helix, a bitcoin mixer that sent more than $300 million in bitcoin to designated recipients. Continue Reading DOJ Again Charges Crypto “Mixer” Under the BSA and District of Columbia’s Money Transmitters Act

Meanwhile, Congress Wants a Report on Russian Money Laundering and Its Relationship to the Real Estate Industry

FinCEN announced today that, once again, it is extending the Geographic Targeting Order, or GTO, regarding real estate transactions.

FinCEN’s press release is here.  The new GTO is here.  It is identical to the most recently issued GTO.  FinCEN has issued FAQs on the GTOs here.  This is a topic on which we previously have blogged extensively.

As we previously have observed, the constant renewals of the real estate GTOs — first initiated in January 2016  — appear to represent an inevitable march towards the issuance of regulations under the Bank Secrecy Act regarding real estate transactions.  The government is analyzing information obtained through the GTOs and using the data not only for initiating and assisting investigations, but presumably also to build a case for permanent regulations applicable to the real estate industry.  To this latter end, a new statute, the Combating Russian Money Laundering Act, passed in conjunction with the Anti-Money Laundering Act of 2020, likely will assist this effort.  The statute in part requires the Secretary of the Treasury to submit by the end of 2021 to the U.S. House of Representatives and Senate a report that “shall identify any additional regulations, statutory changes, enhanced due diligence, and reporting requirements that are necessary to better identify, prevent, and combat money laundering linked to Russia,” including steps related to (1) “strengthening current, or enacting new, reporting requirements and customer due diligence requirements for the real estate sector, law firms, and other trust and corporate service providers[,]” and (2) “establishing a permanent solution to collecting information nationwide to track ownership of real estate.”

So although this report is nominally tied “only” to money laundering related to Russia, it almost surely will be applied to the real estate industry at large.  The report also must address issues involving the beneficial ownership of anonymous companies, and “enhanced know-your-customer procedures and screening for transactions involving Russian political leaders, Russian state-owned enterprises, and known Russian transnational organized crime figures.”

If you are generally interested in the convergence of real estate and money laundering issues, then please check out Ballard Spahr’s detailed chapter, The Intersection of Money Laundering and Real Estate, in Anti-Money Laundering Laws and Regulations 2020, a publication issued by International Comparative Legal Guides (ICLG).  If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. Please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.

As more states legalize cannabis to some degree, the resulting patchwork of laws becomes ever more difficult to navigate for financial institutions, regulators, entrepreneurs, legislators, journalists, and consumers.  Some states continue to wrestle with legalization, while others have moved on to addressing labeling, marketing, and financial concerns.

The Cannabis Group at Ballard Spahr therefore created the Cannabis Legislation Tracker, a technology solution to keep all current and aspiring stakeholders in this multibillion-dollar market up to date.  This resource, available to anyone with an interest in this evolving industry, shows both existing law and pending legislation across the United States. It is designed to be a user-friendly reference for quickly spotting emerging issues.  The ever-shifting legal landscape reflected by the Tracker will continue to impact the Bank Secrecy Act/Anti-Money Laundering considerations of financial institutions working with — or considering working with — the cannabis industry, a topic which we frequently discuss in this blog.

The Tracker is now available directly on the home page of Money Laundering Watch, through an image linking directly to the Tracker.  If you are on your laptop, you will see the link in the right-hand column of the page.  If you are on your phone, please scroll down to the bottom of the page to find the link.

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.  To learn more about Ballard Spahr’s Cannabis Group, please click here.

Art & Antiquities; Beneficial Owners; Foreign Corruption — and More

We are really pleased to be moderating, once again, the Practising Law Institute’s 2021 Anti-Money Laundering Conference on May 11, 2021, starting at 9 a.m. This year’s conference again will be entirely virtual — but it will be as informative, interesting and timely as always.  Our conference co-chair, Nicole S. Healy of Ropers Majeski Kohn & Bentley PC in San Francisco, will conduct a similar program on May 14, 2021.

Once again, we are lucky to have a fantastic line-up of experienced and knowledgeable panelists:

  • Mary Butler, Chief of the International Unit of the Money Laundering and Asset Recovery Section of the U.S. Department of Justice
  • Tess Davis, Executive Director of the Antiquities Coalition
  • Elizabeth Davy, Partner and Co-Head of the Economic Sanctions and Financial Crime Group at Sullivan & Cromwell LLP
  • Mia Levine, Bank Secrecy Act Officer and Head of U.S. Anti-Money Laundering in the Global AML function at TD Bank Group
  • Michael McCullough, Founding Partner of Pearlstein & McCullough LLP
  • Evelyn Sheehan, partner at the Miami office of Kobre & Kim

Many thanks also to Mary Treanor and Alexis Levy of Ballard Spahr’s AML Team for their excellent work on panel materials for the conference.

The conference will tackle many critical issues in BSA/AML compliance and money laundering enforcement.  The three panels will be:

Art and Antiquities: An “Ideal Playing Ground” for Money Laundering?

The potential role of high-end art and antiquities in money laundering schemes has attracted increasing attention over the last several years.  A tightening global enforcement and regulatory net has rendered other possible avenues for money laundering increasingly less attractive, and some have criticized the art world as lacking transparency.  The panel will discuss:

As we have blogged, the Anti-Money Laundering Act of 2020 (“AMLA”) amended the Bank Secrecy Act (“BSA”) to expand greatly the options for whistleblowers alleging anti-money laundering (“AML”) violations and potentially create a wave of litigation and government actions, similar to what has occurred in the wake of the creation of the Dodd-Frank whistleblower program.  As we also have blogged, the AMLA’s new whistleblower provision (“the Act”) has attracted great interest from the plaintiffs’ bar, both in the U.S. and abroad, particularly because AML enforcement actions continue to increase and related penalties continue to rise.

We therefore are pleased to invite you to listen to this podcast, in which we explore the Act and its many implications. The podcast discusses who can be a whistleblower under the Act, the increased incentives now provided, new protections against retaliation, the impact of a whistleblower being involved in the conduct, and practical advice for affected institutions.

This podcast also discusses a potentially important point which has not been noted in much of the considerable discussion swirling around the Act, and which seems to have escaped to date the attention of the vast majority of the plaintiffs’ and defense bars.  Specifically, although the Act has robust anti-retaliation protections for whistleblowers, those specific protections do not apply to employees of insured depository institutions or federal credit unions — i.e., the very institutions that likely will be the primary focus of AMLA whistleblowing investigations and litigation.  Although it is of course true that the BSA, and therefore the Act, applies to a variety of defined “financial institutions,” including broker-dealers, casinos and money services businesses, plaintiff and defense attorneys alike have focused, not surprisingly, on the relevance of the Act to banks and credit unions.  But the Act specifically states that its enhanced anti-retaliation subsection “shall not apply with respect to any employer that is subject to Section 33 of the Federal Deposit Insurance Act (12 U.S.C. § 1831j) or Section 213 or 214 of the Federal Credit Union Act (12 U.S.C. § 1790b, 1790c).”  That means: banks and federal credit unions.  They remain subject to the previously existing anti-retaliation laws set forth at 12 U.S.C. § 1831j and 12 U.S.C. §§ 1790b, 1790c.  Obviously this does not mean that banks and federal credit unions therefore may retaliate with impunity against whistleblowers.  But it does mean that they are subject to an older and simpler anti-retaliation regime, rather than the more elaborate new procedures set forth under the AMLA.

We hope you enjoy the podcast.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. Please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.  To learn more about Ballard Spahr’s Labor and Employment Group, please click here – and to check out HR Law Watch, the Labor and Employment Group’s blog, please click here.

On April 12, 2021, the Office of the Comptroller of the Currency (“OCC”), the Board of Governors of the Federal Reserve System (“Board”), the Federal Deposit Insurance Corporation (“FDIC”), the National Credit Union Administration (“NCUA”) and the Financial Crimes Enforcement Network (“FinCEN”) issued a Request for Information (“RFI”) requesting comment on the extent to which the agencies’ previous guidance on model risk management supports banks’ compliance with Bank Secrecy Act (“BSA) and Anti-Money Laundering (“AML”) regulations and Office of Foreign Asset Control (“OFAC”) requirements.

The RFI asks for comments from interested parties on suggested changes to guidance or regulations, and whether aspects of the agencies’ approaches to BSA/AML and OFAC compliance are either working well, or could be improved.  The agencies explained that the reason for the RFI is to further understand current bank practices, and determine whether additional explanation or clarification of their guidance may be helpful.  Although the genesis of the RFI is not entirely clear, it appears that it was issued in response to certain financial institution inquiries or comments regarding how the maintenance of their BSA/AML compliance programs should incorporate principles set forth in earlier, more general regulatory guidance on model risk management for banks, which we describe below.  Further, the RFI has not occurred in a vacuum, but rather has appeared in the midst of a major, ongoing overhaul of the BSA/AML legislative, regulatory and enforcement regime.  Comments to the RFI must be received by June 11, 2021. Continue Reading Risk Management: Agencies Issue Request for Information on Intersection of Model Risk Management Guidance and BSA/AML Compliance

Eighth Blog Post in an Extended Series on Legislative Changes to the BSA/AML Regulatory Regime

As we have blogged, the Anti-Money Laundering Act of 2020 (“AMLA”) contains major changes to the Bank Secrecy Act (“BSA”), coupled with other changes relating to money laundering, anti-money laundering (“AML”), counter-terrorism financing (“CTF”) and protecting the U.S. financial system against illicit foreign actors.   In this post, we review several provisions of the AMLA section entitled “Modernizing the Anti-Money Laundering and Countering the Financing of Terrorism System.” These provisions signal potentially significant changes in the BSA reporting regime for suspicious activity and currency transactions – albeit in the future, after the performance of studies and reports which Congress has required regarding the effectiveness of Suspicious Activity Report (“SAR”) and Currency Transaction Report (“CTR”) filings.

These provisions of the AMLA require the Treasury Secretary to acquire a fuller picture of the reporting regime as it currently functions in regards to SAR and CTR filings. We repeatedly have blogged about the ongoing debate regarding the utility of SARs and other BSA reports versus the onus the system places on financial institutions (see, for example, here, here, here and here). The AMLA now creates the opportunity for the government to respond to that debate with a data-driven approach. The theme of these AMLA provisions is feedback – both internal and external – regarding how (and whether) SARs work.  Notably, they also address the issue of whether the monetary filing thresholds for SARs (generally, $5,000) and CTRs ($10,000) should be increased.

Continue Reading Review, then Reform? AMLA Charts a Path for the Future of SARs and CTRs

Seventh Post in an Extended Series on Legislative Changes to BSA/AML Regulatory Regime

On April 5, 2021, the Financial Crimes Enforcement Network (“FinCEN”) issued an advance notice of proposed rulemaking (“ANPRM”) to solicit public comment on questions pertaining to the implementation of the Corporate Transparency Act (“CTA”), passed as part of the Anti-Money Laundering Act of 2020 (“AMLA”).  The CTA requires certain legal entities to report their beneficial owners at the time of their creation to a database accessible by U.S. and foreign law enforcement and regulators, and to U.S. financial institutions seeking to comply with their own Anti-Money Laundering (“AML”) and Customer Due Diligence (“CDD”) compliance obligations.

According to the ANPRM, the ability to operate through legal entities without requiring the identification of beneficial owners is a key risk for the U.S. financial system.  The CTA seeks to mitigate the risk by reducing an individual’s ability to use corporate structures to conceal illicit activity such as money laundering, financing of terrorism, proliferation financing, serious tax fraud and human and drug trafficking.  The CTA seeks to set a clear federal standard for incorporation practices, protect vital U.S. national security interests, protect interstate and foreign commerce, better enable various law enforcement agencies to counter illicit activities and bring the U.S. into compliance with international standards.  With the goals of the CTA in mind, the ANPRM seeks public input on procedures and standards for reporting companies to submit information to FinCEN about their beneficial owners, and input on the implementation and maintenance of a database safeguarding disclosed information subject to appropriate protocols.

Written comments on the ANPRM are due soon – by May 5, 2021.  The CTA is a critical development in AML regulation, and FinCEN can expect a considerable response to this important ANPRM, both from the businesses that are covered and the financial institutions that would have access to the beneficial ownership database.  Although the ANPRM is detailed and poses many questions, the ultimate, real-world implementation of the CTA will involve even more questions. Continue Reading FinCEN Seeks Comments on Corporate Transparency Act Implementation

Much has occurred in the last two months regarding the relationship between financial institutions and Marijuana-Related Businesses, or MRBs.  In this post, we discuss three major developments, all of which share a complex connection.  First, the National Credit Union Administration (“NCUA”) recently pursued its first enforcement action against a credit union for Anti-Money Laundering (“AML”) compliance failures when servicing MRBs.  Second, two cannabis industry executives were convicted of bank fraud for allegedly tricking banks and other financial institutions into unwittingly extending financial services to their MRB.  Third, and despite this enforcement drumbeat regarding MRBs, Congress has introduced again, with bi-partisan support, the SAFE Banking Act, which seeks to normalize the banking of cannabis by prohibiting federal bank regulators from taking certain actions against financial institutions servicing MRBs. Continue Reading Banking and Cannabis Enforcement Round Up:  NCUA Imposes First Penalty Relating to Cannabis Banking Services; Cannabis Industry Execs Convicted of Defrauding Banks into Providing Financial Services; Congress Re-Introduces the SAFE Banking Act

On March 29, 2021, the Securities and Exchange Commission (“SEC”) began to make good on its promise to make AML a key examination priority in 2021 by issuing a risk alert authored by the Division of Examinations (“EXAMS”) detailing the results of a review of broker-dealers’ compliance with anti-money laundering (“AML”) requirements (the “Alert”).

The Alert details the obligations of broker-dealers to comply with AML programs and SAR monitoring and reporting requirements pursuant to the “AML Program Rule,” 31 C.F.R. § 1023.210, and the “SAR Rule,” 31 C.F.R. § 1023.320, as well as similar obligations under Rule 17a-8 of the Securities Exchange Act of 1934 (“Exchange Act”), which incorporates the Bank Secrecy Act (“BSA”) reporting and record-keeping obligations applicable to broker-dealers.  The Alert further issues findings that indicate certain firms are experiencing shortcomings when it comes to establishing and implementing sufficient suspicious activity monitoring and reporting policies and procedures, which is leading to inadequate SAR reporting in several respects.

Perhaps not coincidentally, EXAMS issued the Alert shortly after the U.S. Court of Appeals for the Second Circuit ruled in December 2020 in SEC vs. Alpine Securities Corp. that the SEC has the authority to bring an enforcement action against broker-dealers under Section 17(a) and Rule 17a-8 of the Exchange Act on the basis of alleged BSA failures, including failures to comply with the SAR Rule.  Whether the Alert is a true “heads up” or a forewarning of enforcement actions to come, firms are encouraged not to replicate the specific deficiencies identified in the Alert. Continue Reading Broker-Dealers Fail SEC AML Examinations