The Financial Crimes Enforcement Network (“FinCEN”) has, once again, extended its Geographic Targeting Order (“GTO”) 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.  Again, the monetary threshold remains at $300,000, and purchases involving virtual currency are within the reach of the GTO, as well as purchases involving “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.

FinCEN also released a related, and slightly updated, response to Frequently Asked Questions (“FAQs”).

We have blogged extensively on this topic, and therefore we will discuss this not-very-surprising development only lightly here.  To restate the obvious: U.S. regulators and law enforcement are very interested in the possibility that real estate transactions are serving as a vehicle for money laundering, particularly to the extent that the funds are coming from foreign sources.  As we previously have blogged, FinCEN regards the data flowing in from the GTOs as very useful to uncovering potential money laundering schemes.

To keep track, here is the list of affected counties.  The recent extension does not add 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

Finally, and as we have blogged, on February 13, 2019, Sen. Lindsay Graham (R – S.C.) introduced S. 482 – the Defending American Security from Kremlin Aggression Act of 2019 (“DASKAA”). In part, through DASKAA, Congress is attempting to codify and expand the GTOs. Under DASKAA, title insurance companies would be required to “obtain, maintain, and report to the Secretary information on the beneficial owners of entities that purchase residential real estate in high-value transactions in which the domestic title insurance company is involved.” DASKAA defines “Beneficial Owner” to include any individual or entity who directly or indirectly owns 25% or more of a purchasing entity. FinCEN would be required under the bill to prescribe implementing regulations within 90 days of enactment, which would include establishing a monetary threshold for covered transactions “based on the real estate market in which the transaction takes place.”  In essence, DASKAA would make the GTOs permanent and expand them nationwide. To date, the legislative fate of DASKAA is unclear.

Regardless, the latest extension of the FinCEN GTO strongly suggests that FinCEN continues to collect data to support final regulation or legislation in this area.

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.

We are pleased to offer the latest episode in Ballard Spahr’s Consumer Financial Monitor Podcast series — a weekly podcast focusing on the consumer finance issues that matter most, from new product development and emerging technologies to regulatory compliance and enforcement and the ramifications of private litigation.

In this podcast, we review the many recent developments dealing with the provision of financial services to the cannabis industry, including state approaches to banking services, the status of hemp legalization, the interplay between federal and state cannabis law, FinCEN guidance on Bank Secrecy Act expectations, the status of federal regulatory and enforcement activity, and the status and prospects of proposed federal legislation.  This podcast relates to our many blog posts on financial services and the cannabis industry, including our latest post on two proposed cannabis reform efforts, the Secure and Fair Enforcement Banking Act of 2019 and the Strengthening the Tenth Amendment through Entrusting States Act.

We hope that you enjoy the podcast, moderated by our partner Alan Kaplinksy, and find it useful.

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 visit Ballard Spahr’s award-winning Consumer Financial Monitor blog, please click here.

The state-legal marijuana industry in the United States continues to grow – as does support for it. Ten states and Washington, D.C. have legalized recreational adult use and 23 other states allow some form of medical cannabis. According to recent polling, 65% of Americans favor legalization of marijuana. Although interest and investment in state-legal cannabis show no sign of slowing, marijuana still remains classified as a Schedule I drug under the federal Controlled Substance Act (“CSA”).

Because marijuana remains illegal under federal law, banks, credit unions, and other financial institutions that provide even basic banking services to marijuana-related businesses (“MRBs”) face signficant regulatory risk, even if the real-world chances of any criminal enforcement currently appear very remote. For this reason, although some credit unions and state-chartered banks are opening accounts for MRBs, most financial institutions, including the largest banks, remain reluctant to do so.

As we previously blogged, the conflict between state and federal law and the uncertainty regarding how federal laws will be enforced against financial institutions leave most MRBs operating on a cash-only basis. Operating solely as a cash business raises obvious safety and security concerns for both the MRBs and the communities in which they operate, and causes regulatory and tax compliance challenges. Additionally, MRBs may struggle to obtain access to financing needed for operations and expansion.

Recognizing these issues, Congress is taking action — possibly.  We discuss here two proposed cannabis reform efforts, the Secure and Fair Enforcement Banking Act of 2019 (“SAFE Banking Act”) and the Strengthening the Tenth Amendment through Entrusting States Act (“STATES Act”). If passed, both bills would provide federal protections to financial institutions servicing MRBs, thereby signficantly increasing MRBs’ access to the banking system. Both bills have received broad bipartisan support, along with support from affected industry groups.  Either of these bills, if passed, would represent a major change.

(Please also check out our related podcast on financial services and the cannabis industry, which more generally reviews the many recent developments in this area, including state approaches to banking services, the status of hemp legalization, the interplay between federal and state cannabis law, FinCEN guidance on Bank Secrecy Act expectations, the status of federal regulatory and enforcement activity.) Continue Reading Proposed Legislation Aims to Address Safe and Equitable Financial Services in the Growing Cannabis Industry

First Post in a Two-Part Series

Recent actions in the crypto realm demonstrate that authorities and regulators have not slackened their commitment to applying and enforcing Anti-Money Laundering (“AML”) laws and regulations in the crypto industry.  These actions serve as reminders that not only is the government keeping a close eye on cryptocurrency, but its oversight and enforcement can and will come from many angles. What’s more, the government’s recent various proactive and reactive compliance efforts relating to cryptocurrency illustrate the policy principles behind its compliance initiatives from the theoretical to the stark, real world consequences they are intended to avoid.

In this post, we address recent major developments across a spectrum of regulatory, civil, and criminal enforcement cases involving cryptocurrencies, AML and money laundering – courtesy of the combined efforts of the Financial Crimes Enforcement Network (“FinCEN”), the New York Department of Financial Services (“NYDFS”), and the U.S. Department of Justice.

In our next post, we will discuss a 30-page Guidance just issued today by FinCEN, entitled “Application of FinCEN’s Regulations to Certain Business Models Involving Convertible Virtual Currencies” – which was accompanied by a 12-page FinCEN Advisory entitled “Advisory on Illicit Activity Involving Convertible Virtual Currency.” Continue Reading Update: Government Enforcement in the Cryptocurrency Space

Authorities Begin to Focus on Individual Responsibility

This week, Danish prosecutors charged Thomas Borgen, the former chief executive officer of Danske Bank, for his involvement in the money laundering scandal arising out of Danske Bank’s Estonian branch, involving an astonishing 200 billion euros ($224 billion) in alleged suspicious transactions. Borgen, whose home prosecutors reportedly raided on March 12, oversaw Danske Bank’s international operations, including Estonia, between 2009 and 2012.

Borgen stepped down as CEO of Danske Bank on the heels of a report released by the Danish law firm Bruun & Hjejle that the bank released, which found the AML procedures at the Estonian branch were “manifestly insufficient and inadequate,” resulting in numerous breaches of legal obligations by the Estonian branch. We previously analyzed that report, here, which concluded — in apparent contrast with the perceptions of Danish law enforcement — that Borgen, along with the Board of Directors and Audit Committee, did not violate any legal obligations. However, Borgen resigned in September 2018, stating “Even though I was personally cleared from a legal point of view, I hold the ultimate responsibility. There is no doubt that we as an organization have failed in this situation and did not live up to expectations.”

In November 2018, Denmark’s state prosecutors filed preliminary charges against Danske Bank for violations of the country’s anti-money laundering act in connection with its Estonian branch. Danske Bank is being investigated by authorities in several countries, reportedly including the United States, and is facing tremendous potential fines. (see here, here and here for prior blogs on the investigations). So far, the scandal has led to the closure of bank’s operations Estonia and the seizure of assets from the branch. The scandal has also spread to Swedbank, the largest bank operating in Estonia, which dismissed its CEO, Birgitte Bonnesen, over her handling of allegations that the bank’s Baltic accounts laundered money.

Notably, Borgen is the first person charged in this case. As we often discuss, there is an increased emphasis, at least in the United States, on the government’s stated desire to hold individuals accountable for corporate misconduct, including in the AML context.  Given the magnitude of this scandal and the breadth of the investigations, it is unlikely that Borgen will remain the only executive prosecuted in this scandal.

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.

I am really honored to be moderating the Practising Law Institute’s 2019 Anti-Money Laundering Conference in New York City on May 14, 2019, starting at 9 a.m.  My co-chairs are Nicole S. Healy of Ropers Majeski Kohn & Bentley PC, and Jamie Boucher of Skadden Arps Slate Meagher & Flom LLP.  PLI’s AML conference in San Fransisco will be held on June 10, 2019, and both conferences will be available throughout the country via webcasts and groupcasts.

The conference will tackle many critical “hot topics” in BSA/AML, all of which this blog frequently has addressed:

We also are lucky enough to have a great line-up of experienced and knowledgeable panelists:

The conference should be both interesting and timely.  For the complete schedule, please see here.  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.

As we previously blogged, the District of Massachusetts held in AER Advisors Inc. v. Fidelity Brokerage Services, LLC, that the safe harbor provision of the Bank Secrecy Act (BSA) provides unqualified protection to financial institutions and their employees from civil liability for filing a Suspicious Activity Report, or SAR. An update: the First Circuit recently upheld this ruling in an opinion which, consistent with the holdings of most other federal courts, clearly found that the safe harbor protections for SAR filings are absolute. Continue Reading First Circuit Confirms Broad Civil Immunity for Filing a SAR

On April 17, 2019, the United States Attorney’s Office for the Southern District of Florida (the “Government”) announced its non-prosecution agreement (available here) entered into with a Miami-based gold refinery, Republic Metals Corp. (“RMC”), related to the refinery’s failure to maintain a robust anti-money laundering (“AML”) program. RMC is the second American refinery whose AML program has been identified as deficient by the Government as part of its ongoing probe into gold imports from South American countries such as Peru, Bolivia, and Ecuador (dubbed “Operation Arch Stanton”). The Government’s decision to decline prosecution against RMC stands in stark contrast to its prosecution last year of another refinery, Texas-based Elemetal LLC (“Elemetal”), arising from the same probe. Continue Reading Gold and Money Laundering

On April 15, the UK Treasury released proposed steps, entitled a “consultation,” to adopt the EU’s Fifth Money Laundering Directive (“5AMLD”) into national law, while also seeking comments and evidence from stakeholders to inform the final government decisions on adoption of 5AMLD. In certain respects, the exchequer suggests that it might expand the scope of 5AMLD, in part by targeting a perceived gap in stemming the flow of illicit funds in the real property sector. To achieve that goal, it sets forth the possibility of imposing new duties on landlords to carry out extensive due diligence on their tenants, subject to further feedback.

Continue Reading UK’s Anti-Money Laundering Laws May Extend to Private Landlords

UK-based Standard Chartered Bank (“SCB”) announced the terms of significant settlements last week with various U.S. and U.K. governmental agencies, resolving a series of related investigations into the bank’s alleged violations of international sanctions and concomitant failures of anti-money laundering (“AML”) controls over a period stretching from 2007 to 2014. The bank will pay a total of $1.1 billion in combined forfeitures and fines to various national and state agencies in the two countries — and extend, once again, its deferred prosecution agreements (“DPAs”) with the U.S. Department of Justice (“DOJ”) and the New York County District Attorney’s Office (“NYDA”).

Specifically, the bank will pay: a $480 million fine and a $240 million forfeiture to the DOJ; approximately $639 million to the U.S. Treasury Department Office of Foreign Assets Control (“OFAC”); over $292 million to the NYDA; almost $164 million to the Board of Governors of the Federal Reserve System; and $180 million to the New York Department of Financial Services.  The bank also will pay over £102 million (an amount approximately equal to over $133 million) to the U.K.’s Financial Conduct Authority (“FCA”).  After certain payments are credited against some of these penalties, the total will exceed $1 billion.

Continue Reading Standard Chartered Bank Enters Combined $1 Billion+ Settlement with U.S. and U.K. Authorities Over Iranian Financial Transactions