The United States continues to be plagued by mass shootings, which appear to be increasing in both frequency and lethality.  Certain businesses have reacted by adjusting their business models, such as the recent decision by mega-retailer WalMart to stop selling some — but not all — types of ammunition.  Likewise, some financial institutions have imposed restrictions on retail business clients which sell firearms or have stopped lending to certain gun manufacturers.

However, at least some commentators have made a much more far-reaching proposal.  They argue that banks and credit card companies should draw upon their experience monitoring transactions under their Bank Secrecy Act (“BSA”)/Anti-Money Laundering (“AML”) programs and attempt to review individual customers’ purchases of firearms, ammunition and related items such as body armor — in order to file Suspicious Activity Reports (“SARs”) and/or terminate their accounts.

But in order to monitor these types of transactions, financial institutions first would have to convince retailers to provide extra data on customers’ purchases, which otherwise would not typically inform the institution of the precise nature of any given purchase. Moreover, because this proposal focuses on individual customers, the financial institutions would have to draw conclusions based on imperfect information regarding the “true intentions” of the purchaser.  This task would be much more nuanced and difficult than a blanket decision to not do business with a particular industry.

We recognize the sensitive nature of this topic and seek merely to acknowledge this emerging national debate — one unlikely to fade from the national discourse in light of the continued mass shootings that will (unfortunately) keep happening – and to caution the possibility that future civil lawsuits against financial institutions, worthy or not, might incorporate allegations regarding BSA/AML programs and responsibilities.  Such lawsuits could rest on unrealistic assumptions regarding the actual capacity of financial institutions to detect and report the apparent planning activities of a future mass shooter.

This issue invokes echoes of Operation Choke Point, the very controversial and now-defunct program initiated by the Department of Justice and implemented in part by the Federal Deposit Insurance Corporation, in which financial institutions were subjected to higher regulatory scrutiny for providing services to certain allegedly “high risk” but legal businesses, such as gun and ammunition manufacturers.  Perhaps not surprisingly, certain groups have reacted with vehement opposition to the notion that financial institutions should apply higher scrutiny to transactions relating to firearms.  For example, Senator John Kennedy of Louisiana has introduced a bill, entitled the “No Red and Blue Banks Act,” to “prohibit the award of federal contracts to banks that discriminate against lawful businesses through social policy considerations.”  The stated purpose of the bill is to “ensure that [banks] will not be awarded lucrative federal government contracts after trampling on business owners’ Second Amendment rights.”  Although such a bill may simply be a vehicle for a press release, the sentiment is real.

Aside from Second Amendment issues, others have argued that imposing this moral and regulatory burden on banks and credit card companies inappropriately shifts the responsibility for addressing the scourge of mass shootings from where it belongs – with Congress, state legislatures and law enforcement.

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.

Today we are very pleased to welcome guest bloggers Gretta Fenner and Dr. Kateryna Boguslavska of the Basel Institute on Governance (“Basel Institute”). The Basel Institute recently issued its Basel AML Index for 2019. As they explain below, this data-rich and fascinating Index, on which we blogged last year, is one of several online tools developed by the Basel Institute to help both public- and private-sector practitioners tackle financial crime.  The Index is a research-based ranking that assesses countries’ risk exposure to money laundering and terrorist financing.

Established in 2003, the Basel Institute is a not-for-profit Swiss foundation dedicated to working with public and private partners around the world to prevent and combat corruption, and is an Associated Institute of the University of Basel. The Basel Institute’s work involves action, advice and research on issues including anti-corruption collective action, asset recovery, corporate governance and compliance, and more.

Gretta Fenner is the Managing Director of the Basel Institute, where she also holds the position of Director of the Institute’s International Centre for Asset Recovery. She is a political scientist by training and holds bachelor’s and master’s degrees from the Otto-Suhr-Institute at the Free University Berlin, Germany, and the Paris Institute for Political Science (Sciences Po), France. She also holds an MBA from the Curtin University Graduate School of Business, Australia.

Dr. Kateryna Boguslavska is Project Manager for the Basel AML Index at the Basel Institute. A political scientist, she holds a PhD in Political Science from the National Academy of Science in Ukraine, a master’s degree in Comparative and International Studies from ETH Zurich as well as a master’s degree in Political Science from the National University of Kyiv-Mohyla Academy in Ukraine. Before joining the Basel Institute, Dr. Boguslavska worked at Chatham House in London as an Academy Fellow for the Russia and Eurasia program.

This blog post takes the form of a Q & A session, in which Ms. Fenner and Dr. Boguslavska respond to several questions posed by Money Laundering Watch about the Basel AML Index 2019. We hope you enjoy this discussion of global money laundering risks — which addresses AML compliance vs. actual effectiveness, kleptocracy, transparency, de-risking, and more. –Peter Hardy Continue Reading What the Basel AML Index Reveals About Global Money Laundering Risks

On August 21, 2019, FinCEN issued an advisory (the “Advisory”) alerting financial institutions to various financial schemes and mechanisms employed by fentanyl and synthetic opioid traffickers to facilitate the illegal fentanyl trade and launder its proceeds.

As defined by the Centers for Disease Control and Prevention (“CDC”), “fentanyl is a synthetic (man-made) opioid 50 times more potent than heroin and 100 times more potent that morphine.” In 2017, more than 28,000 deaths involving fentanyl and other synthetic opioid occurred in the United States. As noted in the Advisory, fentanyl traffics in the United States from two principal sources: from China by U.S. individuals for personal consumption or domestic distribution or from Mexico by transnational criminal organizations (“TCOs”) and other criminal networks. In turn, these trades are funded through a number of mechanisms, including: purchases from a foreign source made using money servICES businesses (“MSBs”), bank transfers or online payment processors; purchases from a foreign source made using convertible virtual currency (“CVC”); purchases from a domestic source made using MSBs, online payment processors, CVC or person-to-person cash sales.

Recognizing fentanyl traffickers’ modus operandi is critical to detecting and preventing these illicit transactions. Thus, the Advisory provides detailed illustrations of each of the above-identified forms of transaction in order to assist financial institutions to detect and prevent facilitating fentanyl trafficking. Continue Reading FinCEN Advisory Highlights Money Laundering Risks Related to Fentanyl Trafficking

The Financial Crimes Enforcement Network (FinCEN) issued a press release today, entitled “New FinCEN Division Focuses on Identifying Primary Foreign Money Laundering Threats.”

The announcement states that this new Division will focus on topics about which we have blogged repeatedly:  Section 311 of the USA Patriot Act and threats posed to the financial system by narcotics trafficking and the financing of terrorism.  Pursuant to Section 311, 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—by issuing a regulation under the Administrative Procedures Act.

The announcement also stresses the goal of FinCEN to coordinate more with the financial regulation authorities of other countries, thereby underscoring the increasingly international aspects of anti-money laundering enforcement, as well as financial corruption and money laundering itself.

The press release is relatively short, and so it is set forth below in its entirety:

[FinCEN] has launched its Global Investigations Division (GID), which will be responsible for implementing targeted investigation strategies rooted in FinCEN’s unique authorities under the Bank Secrecy Act (BSA) to combat illicit finance threats and related crimes, both domestically and internationally.

FinCEN Director Kenneth A. Blanco announced that Matthew Stiglitz, a former Principal Deputy Chief in the Department of Justice’s Criminal Division, will lead GID. Mr. Stiglitz brings considerable experience to FinCEN in complex international investigations after spending more than 24 years as a state and Federal prosecutor.

“FinCEN will greatly benefit from Matthew’s experience, leadership, and management skills,” said Director Blanco. “We are excited to have him on our team as we stand up GID to further focus FinCEN’s investigative efforts to protect our nation and its people from harm.”

GID will leverage FinCEN’s BSA authorities, including Section 311 of the USA PATRIOT Act, to investigate and target terrorist finance and money laundering threats, and GID will work more closely with foreign counterparts to coordinate actions against such threats when appropriate.

The foundation of GID is FinCEN’s former Office of Special Measures (OSM), which was previously a part of FinCEN’s Enforcement Division. FinCEN’s strategic use of its Section 311 authority as well as its other information collection authorities, such as the geographic targeting order and foreign financial agency regulation authorities, have greatly expanded in recent years. FinCEN will now have one dedicated division focused on utilizing these authorities to maximum effect, building upon OSM’s prior work.

GID will employ FinCEN’s authorities to detect and deter a wide range of potential threats to our national security and financial system, including those that have a nexus to the proliferation of weapons of mass destruction, rogue state actors, transnational organized crime, international narcotics trafficking, and terrorism.

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.

We regularly blog about the conflict between state and federal law related to cannabis and the uncertainty regarding how federal criminal and Bank Secrecy Act (“BSA”) law will, or will not, be enforced against financial institutions providing banking services to marijuana-related businesses (“MRBs”). Because of this continuing uncertainty, many MRBs must operate on a cash-only basis. This creates significant safety and security concerns for both the MRBs and the communities in which they operate, causes regulatory and tax compliance challenges, and handicaps business growth.

This post provides an update on very recent efforts to provide a level of federal protection to financial institutions which provide banking services to MRBs. First, the Senate Banking Committee held a hearing regarding challenges faced by financial institutions and businesses in the cannabis sector. Second, the National Credit Union Administration (“NCUA”) issued guidance regarding servicing hemp producers and the cannabis industry. This NCUA guidance came quickly on the heels of a statement by the chairman of the NCUA that his agency won’t sanction federally-chartered credit unions for working with state-legal MRBs. Continue Reading Update: Recent Momentum in Efforts to Provide Cannabis Businesses Access to Financial Services

FinCEN Director Kenneth A. Blanco delivered prepared remarks on August 13 at the 12th Annual Las Vegas Anti-Money Laundering Conference.  We previously have blogged repeatedly on the anti-money laundering (“AML”) and Bank Secrecy Act (“BSA”) challenges facing the gaming industry.  This post will discuss Director Blanco’s comments at a high level only, consistent with the generality of his prepared speech. Continue Reading FinCEN Director Blanco Addresses AML Compliance and Casinos

Opinion Allows DOJ Broad Access to Foreign Banks’ Correspondent Account Records Relating to Alleged Front Company Operating for North Korea

On August 6, the U.S. Court of Appeals for the District of Columbia kept in place $50,000-per-day fines on three Chinese banks—whose identities are redacted—for refusing to comply with subpoenas issued by the Department of Justice (“DOJ”) for records of a Hong Kong company (“Company”) that allegedly facilitated hundreds of millions of dollars of transactions for a North Korean state-owed entity (“NKE”), in violation of U.S. sanctions.

We will focus on the court’s ruling that a subpoena issued under a provision of the USA PATRIOT Act allows access to records held by foreign banks that use U.S. correspondent accounts, including records of transactions that do not themselves pass through a U.S. correspondent account, if those transactions were part of a larger scheme to access dollar funding through a U.S. correspondent account.


According to the U.S. government, North Korea’s weapons programs pose “a grave and growing threat” to the security of the U.S. and—indeed—the world. In order to finance those programs, North Korea “uses state-owned entities and banks” to conduct financial transactions “in support” to finance its efforts. To impede those efforts, the U.S. maintains a robust sanctions regime against North Korea and the various entities it controls. Certain of those sanctions—enacted in 2013— are intended to cut off North Korea’s access to the U.S. financial system. But North Korea is said to evade those restrictions through, among other means, its use of front company transactions originating in foreign-based banks, which are in turn processed through correspondent bank accounts in the U.S. Continue Reading D.C. Circuit Rules in Favor of Broad Reach of Patriot Act Subpoenas

The Federal Reserve and the Financial Crimes Enforcement Network, or FinCEN, both recently issued reports addressing worrisome trends in technology-assisted financial fraud.  The reports seek to engage the financial services industry in partnering more closely to reduce associated losses.

Specifically, the Federal Reserve issued a report entitled Synthetic Identity Fraud in the U.S. Payment System. FinCEN issued a report entitled Manufacturing and Construction Top Targets for Business Email Compromise. Collectively, the reports reflect how techonology-driven fraud and identity theft schemes can target financial institutions, businesses and consumers alike, thereby impacting the Anti-Money Laundering and related anti-fraud programs of the financial institutions implicated by such schemes. Continue Reading Federal Reserve and FinCEN Raise Alarms Regarding Technology-Assisted Financial Fraud

On July 22, 2019, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency and the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) (collectively the federal banking agencies), issued a joint statement entitled Joint Statement on Risk-Focused Bank Secrecy Act/Anti-Money Laundering Supervision (the “statement”).

The specific emphasis of the statement is to reiterate that the federal agencies will take a risk-focused approach to examinations. The statement itself does not purport to create new requirements but rather is a tool to enhance transparency in the approach used by the federal banking agencies in planning and performing BSA/AML examinations. As the statement notes, it “aligns with the federal banking agencies’ long-standing practices for risk-focused safety and soundness examinations.”

Risk Profiles

At the outset, the federal banking agencies urge banks to conduct a comprehensive risk assessment, which are deemed “a critical part of sound risk management.” Specifically, banks themselves have unique risk profiles given each bank’s focus (i.e., “a bank with a localized community focus likely has a stable, known customer base”) and complexity, which must be assessed at the outset when developing and implementing an adequate BSA/AML program.

Of particular note, the federal banking agencies state that banks that “operate in compliance with applicable law, properly manage customer relationships and effectively mitigate risk by implementing controls commensurate with those risk are neither prohibited nor discouraged from providing banking services.”  The statement goes on to assert that “banks are encouraged to manage customer relationships and mitigate risks based on customer relationships rather than declining to provide banking services to entire categories of customers.” Continue Reading Joint Statement Issued by Federal Banking Agencies Highlights Importance of Banks’ Risk-Assessments

The Office of the Comptroller of Currency (“OCC”) issued an extraordinary announcement regarding the decision of a former bank general counsel – Daniel Weiss, formerly employed by Rabobank, N.A. – to enter into a Consent Order in which Mr. Weiss agreed to be barred from the banking industry and pay a $50,000 fine. The Consent Order is relatively generic; the Notice of Charges issued by the OCC which lead up to the Consent Order is the more interesting document.

The Notice of Charges, in part, alleges that a former Chief Compliance Officer (“COO”) of the bank, shortly after coming to the bank in July 2012, identified “serious deficiencies in the Bank’s BSA/AML program and communciated her findings to Bank Management.” Management disagreed. Shortly thereafter, the OCC began an examination of the bank’s BSA/AML compliance program.   In December 2012, and partly in reponse to concerns raised by the COO, the bank contracted with an audit firm to provide “an independent, written assessment of the Bank’s BSA/AML compliance program[.]” Allegedly, the findings of the audit firm corroborated the findings of the COO that the program was deficient in several signficant ways. Later, the COO turned into a whistleblower and gave the audit firm’s report to the OCC, which responded by resuming its 2012 examination of the bank’s BSA/AML compliance program.

Long story short, according to the Notice of Charges, the bank responded to an OCC letter regarding potential BSA/AML deficiencies as follows:

The Bank’s response did not disclose the existence of the [audit firm’s report], or acknowledge its findings, which corrobarated the OCC’s examination findings. Instead, the Bank’s response, drafted by [Weiss and another individual], disputed the OCC’s preliminary conclusion regarding the Bank’s BSA/AML compliance program.

To be clear, subsequent allegations by the Notice of Charges allege additional obfuscation by the bank in communications with the OCC regarding the nature and the details of the audit firm’s report. But the theme of the Notice of Charges is that the OCC continually sought from the bank the audit firm’s report, and Weiss instead “knowingly and willfully participated in the making of materially false statements regarding the Bank’s possession of the [audit firm] Report to the OCC continuously and repeatedly throughout March of 2013 until April 18, 2013.” This claim is the heart of the enforcement case against Weiss.

This is a significant development in the ongoing issue regarding the liability of individuals for alleged AML failures – particularly given the fact that Mr. Weiss was not “just” a compliance officer, but was the general counsel of a major financial institution.

It is perhaps slightly unnerving that the government would focus its case on the alleged failure to turn over a report by a third-party hired to enhance compliance. In theory, that general enforcement approach, if taken to extremes, could have real consequences for financial institutions and the consulting and legal service providers in their orbit. That approach also could have perverse compliance consequences. Some institutions could conclude that it is “too risky” to hire a third-party – whether it be a consulting, advisory or legal firm – because the findings, however helpful, could form a roadmap for a future enforcement action. Such an inconvenient report would be in the file, and therefore could be subject to potential requests by regulators – thereby creating a “Catch 22” scenario for the institution. Lest one be too cynical, and conclude that this is only a problem for financial institutions that don’t want to confront real problems, it also must be noted that some advisors stay in business by finding serious problems everywhere. However, and on a more practical level, Rabobank had serious problems in this specific case, which resulted in a criminal charge and a significant penalty of $360 million. As always, concerns regarding the potential spread of an overly broad theory must be considered in light of its real-world application and limitations.

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.