Federal Register Notice Implicates Debate Over BSA Reporting Burden

As we have blogged (here, here, and here), the Financial Crimes Enforcement Network (“FinCEN”) consistently has stressed the importance of Suspicious Activity Reports (“SARs”) and other Bank Secrecy Act (“BSA”) filing requirements to anti-money laundering (“AML”), counter-terrorism and law enforcement efforts. These vigorous pronouncements can be contrasted with certain critiques by industry groups and some commentators regarding the true operational value (or lack thereof) of BSA reporting requirements to law enforcement and financial institutions’ AML programs, particularly when compared to the overall costs associated with the current and rigorous regulatory regime. Lurking behind this debate is the possibility that some requirements of the BSA maybe reduced – or “reformed,” depending upon one’s perspective – through legislation. A recent regulatory filing by FinCEN illustrates this tension and ongoing debate.

On May 26, 2020, FinCEN issued a notice in the Federal Register (“Notice”) to renew the Office of Management and Budget (“OMB”) control numbers assigned to the SAR reporting regulations. The Notice is required in order to give the financial industry and affected stakeholders an opportunity to comment on existing regulatory requirements, as well as associated burdens. Although FinCEN has encouraged the industry to review the Notice and comment, it likely will not be surprised if at least some industry groups push back and criticize the associated estimates regarding burden. Regardless, the Notice provides interesting insights and statistics into current SAR reporting. Continue Reading FinCEN Seeks Industry Comments on SAR Reporting Burden and Provides Plentiful SAR Stats

Travel These Days

Kenneth Blanco, Director of the Financial Crimes Enforcement Network (“FinCEN”), recently provided remarks about FinCEN’s “Travel Rule” at the first truly-virtual Consensus Blockchain Conference. The Travel Rule, which became effective in 1996, requires money services businesses (“MSBs”) – including cryptocurrency exchanges – to maintain identifying information on all parties in fund transfers of over $3,000 between financial institutions. As we discuss below, this principle creates real-world practical problems in the digital currency industry, in which it is not necessarily easy to obtain such information, unlike the traditional banking industry.

During his remarks, Director Blanco applauded the Financial Action Task Force’s (“FATF”) guidance issued last June, about which we have blogged here, instructing its 180 international member governments to similarly demand that virtual asset service providers (“VASPs”) collect “accurate originator information and required beneficiary information” on transactions of $1,000 or more. FATF’s pronouncement sent some shockwaves through the digital currency industry.

Notably, Director Blanco also lauded the efforts of cross-sector organizations and working groups to develop international standards and solutions to aid compliance with the Travel Rule. He urged for continued cooperation between FinCEN and the virtual currency industry to effectively implement Anti-Money Laundering (“AML”) measures consistent with the Travel Rule. Continue Reading FinCEN Director Blanco Urges Collaboration Across Virtual Currency Industry to Comply with Travel Rule

On May 18, the Financial Crimes Enforcement Network (“FinCEN”) issued an Advisory “to alert financial institutions to rising medical scams related to the COVID-19 pandemic. This [A]dvisory contains red flags, descriptions of COVID-19 related medical scams, and information on reporting suspicious activity.” According to FinCEN, “[t]his is the first of several advisories FinCEN intends to issue concerning financial crimes related to the COVID-19 pandemic.” FinCEN also issued a companion Notice to the Advisory that “provides detailed filing instructions for financial institutions, which will serve as a reference for future COVID-19 advisories.”

Although FinCEN has made clear that future advisories will follow, the May 18 Advisory and Notice are themselves the latest in a string of prior pronouncements by FinCEN relating to the global pandemic. As we have blogged, FinCEN updated its March 16, 2020 COVID-19 Notice for the stated reason of assisting “financial institutions in complying with their Bank Secrecy Act (“BSA”) obligations during the COVID-19 pandemic, and announc[ing] a direct contact mechanism for urgent COVID-19-related issues.” FinCEN, of course, is not the only regulatory body addressing Anti-Money Laundering (“AML”) issues implicated by COVID-19. As we also have blogged, the Financial Action Task Force (“FATF”) recently issued a paper entitled “Covid-19-Related Money Laundering and Terrorist Financing – Risk and Policy Responses” This FATF Paper follows up on the April 1, 2020 statement issued by FATF’s President on COVID-19 and measures to combat illicit financing.

The Advisory is surprisingly specific when describing the possible scams and potential red flags that FinCEN believes that financial institutions should be monitoring for in order to detect, prevent, and report such suspicious activity. In addition to providing a list of red flags, the Advisory provides specific case studies demonstrating the real-world concerns surrounding these scams. Although this level of detail is helpful to financial institutions when integrating the Advisory into their own programs, it also seems to impose potential heightened due diligence requirements on financial institutions when dealing with companies engaged in providing medical services and supplies. Continue Reading FinCEN Issues Advisory on Medical Scams Relating to COVID-19

We are very pleased to announce that we have published a 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).

Money laundering and anti-money laundering concerns relating to the real estate industry is a topic on which we have blogged frequently, given its growing importance and the many fascinating issues implicated. We hope that you enjoy the chapter and find it useful.

ICLG is a global platform for legal reference, analysis and news, hosting comparative legal guides and research tools that cover law in more than 191 jurisdictions across 60 practice areas.  In the 2020 version of Anti-Money Laundering Laws and Regulations, we are joined by other law firms from around the world in discussing the AML regulatory regimes in 26 countries, including the U.S. In addition to our chapter on money laundering and real estate, the guidebook contains chapters addressing the extraterritorial reach of the U.S. money laundering statutes; AML issues in the Asia-Pacific region; and EU legislation regarding AML issues.

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.

In the past month, the Government Accountability Office (“GAO”), a non-partisan legislative agency that monitors and audits government spending and operations, has issued a series of reports urging banking regulators and certain executive branch agencies to adopt recommendations related to trade-based money laundering (“TBML”) and derisking. These reports underscore (1) the importance of TBML as a key, although still inadequately measured, component of money laundering worldwide, and (2) that the GAO remains interested in assessing how banks’ regulatory concerns may be influencing their willingness to provide services.

Taken together, the GAO’s recent activity signals that even in the face of unprecedented public health and regulatory challenges posed by COVID-19, the GAO still expects banking regulators and agencies alike to fulfill its prior commitments on other, unrelated topics.

Continue Reading Government Accountability Office Roundup: Recent Activity on Topics Related to Trade-Based Money Laundering and Derisking

Recent DOJ Forfeiture Action Against High-End Real Estate in Notorious Corruption Scheme Underscores Issues 

We are pleased to be presenting on Money Laundering and the Real Estate Industry on May 20 before the Real Estate Services Providers Council (RESPRO), a national non-profit trade association representing businesses before federal and state policy makers, and comprised of real estate broker-owners, real estate franchisors, mortgage lenders and brokers, title insurers and agents, homebuilders, home warranty companies, and other settlement service providers.

This is a key topic on which we have blogged frequently — including just earlier this week, when we noted that FinCEN again had renewed the Geographic Targeting Orders, or GTOs, requiring U.S. title insurance companies to identify the natural persons behind legal entities used in purchases of residential real estate performed without a bank loan or similar form of external financing.  Real estate and money laundering also was the focus of our recent panel at the Practising Law Institute’s 2020 Anti-Money Laundering Conference.

Indeed, just last week the Department of Justice (“DOJ”) announced that it had reached a settlement of its civil forfeiture cases against high-end real estate acquired through funds allegedly misappropriated from 1Malaysia Development Berhad (1MDB), Malaysia’s investment development fund, and laundered through financial institutions in the United States, Switzerland, Singapore, Luxembourg, and elsewhere. According to the civil forfeiture complaints, from 2009 through 2015, more than $4.5 billion in funds belonging to 1MDB were allegedly misappropriated by high-level officials of 1MDB and their associates through a criminal conspiracy involving international money laundering and bribery.  Under the terms of the settlement, the Atlantic Property Trust, which oversees the assets at issue in these forfeiture actions, agreed to forfeit all assets subject to pending forfeiture complaints in which they have a potential interest.  The assets subject to the settlement agreement include the sale proceeds of high-end real estate acquired in Beverly Hills as well as a luxury penthouse in New York City allegedly acquired with funds traceable to misappropriated 1MDB monies.  The assets being forfeited subject to this settlement are in addition to the more than $1 billion in assets the United States previously forfeited in connection with the DOJ’s 1MDB investigation.

Generally, the real estate industry has come under increasing scrutiny by regulators and prosecutors in recent years regarding the possibility that both corporate forms and real estate professionals are being misused by bad actors to launder the proceeds of criminal schemes committed in the U.S. and abroad.  This concern has led to increased reporting obligations to the federal government for certain high-end deals — the GTOs — and to potential future regulation and legislation.  We will discuss with RESPRO these developments, enforcement trends and how real estate professionals can try to protect themselves from accusations by the government that they were “willfully blind” to deals involving tainted proceeds.

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.

As expected, on May 8, 2020, the Financial Crimes Enforcement Network (“FinCEN”) reissued its Geographic Targeting Orders (“GTOs”) requiring U.S. title insurance companies to identify the natural persons behind legal entities used in purchases of residential real estate performed without a bank loan or similar form of external financing.  The monetary threshold remains at $300,000, and the nine districts remain the same.  The GTOs cover purchases involving virtual currency as well as “fiat” currency, wires, personal or business checks, cashier’s checks, certified checks, traveler’s checks, a money order in any form, or a funds transfer.

No new jurisdictions were added to the previously existing coverage of the GTOs:

  • California: San Diego, Los Angeles, San Francisco, San Mateo and Santa Clara Counties
  • Florida: Miami-Dade, Broward and Palm Beach Counties
  • Hawaii: City and County of Honolulu
  • Illinois: Cook County
  • Massachusetts: Suffolk and Middlesex Counties
  • Nevada: Clark County
  • New York: Boroughs of Brooklyn, Queens, Bronx, Staten Island and Manhattan
  • Texas: Bexar, Tarrant and Dallas counties
  • Washington: King County

The reissuance  was identical to the November 2019 GTOs.

FinCEN also released a response to Frequently Asked Questions (“FAQs”), which is identical to the FAQs issued in May 2019.

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.

On May 4, the Financial Action Task Force (“FATF”) issued a paper entitled “Covid-19-Related Money Laundering and Terrorist Financing – Risk and Policy Responses (“Paper”). This Paper follows up on the April 1, 2020 statement issued by FATF’s President on COVID-19 and measures to combat illicit financing, on which we previously blogged. As we also have blogged, the COVID-19 pandemic will cause many financial institutions to face significant Anti-Money Laundering (“AML”) issues because of the unfortunate confluence of increased fraud schemes seeking to capitalize on the pandemic, coupled with the fact that many BSA/AML compliance teams will be straining to maintain an adequate amount of staff and degree of communication. Continue Reading FATF Issues Paper on COVID-19 Enhanced AML and Fraud Risks

For years, lawyers have been in the cross hairs of prosecutors and regulators, who sometimes regard lawyers as potential gatekeepers responsible for preventing wrongdoing by clients. On April 29, 2020, the American Bar Association (“ABA”) issued an important opinion (“Opinion 491”) reminding lawyers that they are responsible for conducting sufficient inquiry into the facts and circumstances of a matter a client or prospective client asks them to undertake if there is a “high probability” that the client is seeking to use the lawyer’s services to commit a crime.

As we frequently blog, there are myriad ways that lawyers can hit the tripwire and face ethical or criminal liability for professional work performed for clients. The need for lawyers to be on guard against potential money laundering activity by clients is a primary focus of Opinion 491. Continue Reading ABA Issues Formal Opinion on Lawyers as “Gatekeepers” for Client Criminality

We are really pleased to be moderating the Practising Law Institute’s 2020 Anti-Money Laundering Conference on May 12, 2020, starting at 9 a.m. Perhaps needless to say, this year’s conference will be entirely virtual.  But the conference still should 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 15, 2020.

We are lucky to have a truly fantastic line-up of very experienced and knowledgeable panelists:

Of course, the conference will tackle many critical issues in BSA/AML compliance and money laundering enforcement, all of which this blog frequently has addressed.  The three panels will be:

“Hot” Issues in AML and Money Laundering: Cryptocurrencies and Cannabis

The cryptocurrency and cannabis industries continue to pose a fascinating mix of competing opportunities and risks – particularly from an AML perspective. Technological innovation, changing societal opinions and business opportunities can conflict with the need for transparency and daunting legal landscapes. Despite some skeptics, these industries appear to be here to stay. Navigating the money laundering risks can be particularly difficult.  The panel will discuss:

  • Recent enforcement actions involving cryptocurrency and cannabis
  • Managing the specific AML risks presented by both industries – from the perspective of financial institutions as well as industry participants
  • The current status of legislative reform as to cannabis and banking

Shell Companies and the Real Estate Industry

Shell companies and the issue of true beneficial ownership continue to be the most critical AML and money laundering issue facing financial institutions, both in the U.S. and abroad. This is certainly true in the real estate industry, which has come under increasing scrutiny in recent years, leading to new reporting obligations for certain high-end deals. Among other issues, the panel will discuss:

  • The general problem posed by shell companies and ongoing regulatory efforts
  • Money laundering risks faced by real estate professionals and industry best practices
  • FinCEN’s Geographic Targeting Orders
  • Future possible legislation and regulation

Sanctions, Trade Embargos and AML

Economic sanctions enforcement has become increasingly active and can involve multiple agencies. Any AML program absolutely must account for the U.S. economic sanctions regime, which presents the uneasy combination of great complexity with potentially severe consequences for violations. The panel will discuss:

  • Key trends in enforcement at the DOJ and the U.S. Treasury Department’s Office of Foreign Assets Control
  • The nuts and bolts of an effective sanctions compliance program
  • The impact of economic sanctions law on financial institutions and BSA/AML programs.

We hope you attend!

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.